My last article listed seven factors that can and will affect the value of your business.
That list was not comprehensive. There are more.
Here are seven more factors you, the owner of a privately held business, should consider.
The additional seven-factors are:
1) Narrow Customer Base (Concentration) lowers value. Most successful companies try to reduce dependence on a few large customers. Should any one customer be lost, the effect on business earnings is then minimal. The more loyal and diverse the customers that a company has the higher its value. It is even better to have long-established contracts with customers.
2) Concentration of Suppliers lowers value. The same dynamic applies to suppliers and to customers. A company should not be too dependent on just a few suppliers to prevent operational disruptions.
3) Competitive Environment. Businesses that compete in a market segment dominated by a few large, well-funded competitors may face tough times. A company is likely to be more valuable if it does most of its business in highly fragmented market sectors with many smaller competitors.
4) Distribution Channels. Reliance on a small number of distributors, reps, or other limited distribution options hurts value. Having wide distribution helps increase value, and adds diversification in how the product is sold and put in the hands of customers.
5) Industry Growth Prospects. Companies operating in rapidly growing industry sectors are more valuable. These days companies in technology, health services, energy and maybe education are likely to face favorable growth prospects because the demand for these types of products and services is growing. Some industries are just “hot” at the moment and companies in those industries command higher valuations.
6) Upcoming Capital Expenditures. If a company will be needing to make large expenditures to replace outdated equipment, facilities, etc., that will negatively affect the value and marketability of that company.
7) Obvious Buyers. If there is competition to buy the company and many other Buyers are present, the value goes up.
