Factors affecting value
Your adjusted EBITDA is the starting point for pricing your business for sale, and other factors can and will determine what a buyer is actually willing to pay for your company. The consistency of your earnings will be a big one. If your track record is full of fluctuations up and down, your business will be valued for less than if it had a steady, stable upward trend. Other factors will include your historical growth, the quality of your management and the market.
There are two hugely significant factors that will gut the value right out of your business.
- Significant customer concentration issues
If all your work is done for one customer, you’re in trouble. Let’s say you manufacture parts exclusively for Boeing. This means the livelihood of your business is entirely dependent on one customer. If Boeing ever gets into trouble, so do you. (Fortunately, in today’s market Boeing is booming. But what goes up will come down…eventually.)
- Your business is dependent upon its owner
A quality management team that can keep the business going without you is valuable to a potential buyer. If you’re central to the survival of your business, your business is less attractive. Then, if you do find a buyer, he or she is going to want to lock you in to helping with the transition for a long period of time. So once you’ve sold your business, you’re not actually done with the day to day.
If you have customer concentration issues and the wrong management in place, your sales plan must address these.
Speak with an expert about transitioning your business.