A business valuation is not about what a company is worth in the current owner's hands, it's about the company's transferable value. It's about the probability that the business will sustain its profitability and continue to grow with a new owner at the helm. Therefore, the factors that contribute to the company's stability and consistency will be examined by prospective buyers to determine the risks associated with taking over the business.
A strong brand, an intangible asset and an element of goodwill, is a desirable attribute to have in the business-for-sale marketplace. Documented systems, also, is a factor that shares to saleability. Both make the list of the top ten value drivers that increase the sale price of a business.
If you are a small business owner, it would be worth your while to have a game plan for how you would package your business for sale. Depending on the size of your firm you may need a few things in place in order to sell the company. The first and probably the most important thing you need to do is describe how a new owner would be able to replace you, the current owner. An enterprise with infrastructure guiding its revenue-generating capacity is much more appealing than one with a single person holding the key to the revenue engine. As the E-myth explains, the owner should be free to work "On" the business instead of "In" the business. So documenting how the business runs and how you do what you do is important.
Once the owner's role is documented and a detailed policies and procedures manual is in place, the next thing to focus on is sales. If there is no sales strategy in place that includes a well documented process for how to train and get sales staff up to speed, the company may be perceived as risky to prospective buyers. A step further would be to outline realistic opportunities for future growth that specifically illustrate the reasons why cash flow and the business itself will grow after it is acquired. This would paint the larger picture of your business and should translate into added value. This is why it is important to think about properly presenting future profitability, it's all about "show me the money."
After all systems have been documented so a new owner can step into your shoes and transition smoothly into operating the company, with the knowledge that the sales engine will continue to rev, the next step would be to think – BRANDING. A unique brand identity that identifies your business from your competitors is the route to success for all companies. The better the brand position you have in the marketplace, the lower the risk of taking over the business. This translates to higher value. How is your business received by your target market? What unique attributes do customers and prospects associate with your business? Is your business name trademarked? Are your logos or other intellectual property protected? These all represent your brand and are valuable. As a matter of fact, McDonald's brand does not appear on the company's balance sheet, even though it is estimated to account for about 70 percent of the firm's stock market value.
Just as your product or service needs intrinsic value in order to sell it to the end user, your business needs distinct attributes in order to sell it in the business-for-sale marketplace. Look at your company as a product you want to sell. How would you describe that product in an advertisement?
" If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trade marks, and I would fare better than you ." – John Stuart, Chairman of Quaker (ca. 1900)