Quality of Revenue – What are the chances the revenue (and margins) will continue as it has historically? This is why recurring revenue, long- term contracts, long-term customers, etc. will cause the multiple to go up. Size of Normalised EBITDA – Mathematically valuation is often calculated as a multiple x Normalised EBITDA therefore the higher the Normalised EBITDA, the higher the valuation. Key Man/Woman – The company needs to keep running and producing cash flow, people are most often key. If the owner leaves, does this create a risk for this cash flow? In an ideal situation, the owner will already have a management team and key people in place and a Buyer will assess there is little risk in a dip in operations. Vendor Concentration and Dependency – If the company is heavily dependent on one or a few vendors this can be a red flag that increases risk. What happens if they decide to stop supplying? What about other contractual relationships that could suddenly disrupt business operations? Documented Processes – Having documented processes versus a few people in the middle of everything to keep things going increases the confidence a Buyer has that the transition post-sale will be smooth. An operations manual that documents these processes is ideal. Also, most often Buyers know companies that are process based and well documented are easier to scale and grow.
The Above Aspects are Covered in More Detail Below:
Good Books and Records are Key to Selling a Business - During our training as business advisers and in all of our material we are told the three most important things to have ready when selling a business are:
- Good Books and Records
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