As a corporate finance advisor, you can have all the skill in the world but if the company is not saleable its not saleable. During this period of my career I made notes of why businesses sell for top dollar, why some just get away by the skin of their teeth and why some fail to attract any reasonable offer at all.
Here is a simple test to help you determine if your business can be sold at a premium valuation. I've used this test as a predictor of success of "selling out" at attractive prices. Give yourself a maximum score of 5 for each if you strongly agree with the assertion and zero if you totally disagree. Those companies scoring 60 or above were almost always sold at a premium valuation.
Saleability Test (15 Big Factors Driving Value)
- Your compelling story and results you achieve for customers are clear.
- Industry peers see you as top 5 in the industry.
- Sales and profits growing at 25% year over year.
- Three year horizon shows strong and high growing market.
- Current year trailing and full year forecasted earnings are great than prior years.
- Legacy products don't dominate sales and profits.
- Significant annual profits (EBITDA $10 million plus scores 5).
- No one customer accounts for more than 5% of sales.
- Top ten managers regarded as world class.
- Business is not depedant on owner.
- Highest margin in your industry.
- Business model produces a sustainable annuity stream of income.
- Accounts audited annually by recognized accounting firm.
- Staff moral and engagement are high.
- Legal contracts and filings are in good order.
A score of 60 or above implies you own a highly saleable business. A score below 60 but above 46 implies a quality business with a few grooming issues worth addressing. A score below 46 but above 30 implies a good business but which contains problems that need to be addressed to ensure the maximum proceeds are realized from a sale. A score of 30 or below implies a business that needs to address some fundamental issues to ensure that shareholder value is not eroded in the short to medium term.
Addressing some of these issues can take years to fix but the prize is a more predictable, successful business even if you hang on to it!