Internal Factors That Affect Your Company’s Sale Price

But most of what determines value comes from inside your company. Here are some of the most important factors.

When a business has to be sold quickly, there’s not enough time or financial resources to make upgrades or improvements that would be needed to attract the highest sale price.

If they’re not, the owner has time to grow the business enough to make the cash flow attractive to buyers.

They prefer to see a professional management team in place, so they can focus on growing the business rather than running it.

Buyers will also want to understand your key employees’ relationship with the business, whether they have non-compete agreements or other contractual arrangements that impact risk.

Balancing out your customer base will help make your business more attractive on the market.

Are the contracts in place transferrable, or will the new owner have to re-bid or renegotiate them? The same question applies to leases and other company agreements.

You and your team have complete control over the physical assets of your company, and it’s in your best interest to keep them up.

Getting a business broker involved in your planning early increases your chances of getting all you can out of a sale.

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Joe Shemansky     08/07/2022

Internal Factors That Affect Your Company’s Sale Price

In a previous post, I wrote about external factors that can influence the value of your company. Market and economic conditions, interest rates, the availability of capital, and how willing buyers are to take risks will all affect the multiples that determine your company’s sale price. But most of what determines value comes from inside your company. Here are some of the most important factors.

The first is the timing of your exit. Many businesses come on the market when the owner becomes ill or is in the midst of a family crisis. Divorce, death, or legal problems can force an owner or family members left behind to put the company up for sale. In these situations, they’re often looking for a quick closing rather than the best deal.

Naturally, when a sale is forced by circumstances, there’s not as much time to plan or to maximize the company’s value. If the owner was the one who performed most or a significant portion of the work, business may have ground to a halt when they couldn’t perform their duties. The remaining spouse or partner may not have the ability to revive the business, so it will go on the market at a deep discount. When a business has to be sold quickly, there’s not enough time or financial resources to make upgrades or improvements that would be needed to attract the highest sale price.

Ideally, an owner will start planning the exit strategy a year or two before actually putting the company on the market. One of the ways a business broker can be helpful in advance is to analyze revenue and cash flow to determine if they’re enough to cover business operations and service the debt of purchase. If they’re not, the owner has time to grow the business enough to make the cash flow attractive to buyers.

Buyers also strongly prefer to purchase a business that can be run independently. Buyers are rarely interested in companies where the owner is deeply involved in running the business or doing the work. They have to estimate the cost of replacing the owner, which may even mean hiring more than one person. They prefer to see a professional management team in place, so they can focus on growing the business rather than running it.

That’s why brokers take a careful look at the workforce, especially key employees who are essential to the company’s success. The Small Business Administration often requests information about key employees on an owner’s application for a small business loan. Prospective buyers will want to be assured that the key staff members will be staying on after the sale to ensure the business will continue to operate smoothly. Buyers will also want to understand your key employees’ relationship with the business, whether they have non-compete agreements or other contractual arrangements that impact risk.

Your customer base matters to a buyer as well. Do you have signed, formal agreements or contracts in place that guarantee business after the owner exits? Or is most of the business done by handshake, which means the new owner may lose revenue when the current owner leaves. Are the contracts in place transferrable, or will the new owner have to re-bid or renegotiate them? The same question applies to leases and other company agreements.

Where your customers are located can make a difference to a buyer as well. If your customers are spread out over a large geographical area, they’ll be more expensive and labor-intensive to service than customers closer to the company’s physical location. If you have a considerable amount of business concentrated in a few large customers, that can also pose a risk for a new buyer; the loss of any one large customer can dramatically impact future revenue. Balancing out your customer base will help make your business more attractive on the market.

The age and condition of your facility and the equipment will also be factored into the company’s valuation. Older equipment that has been well-maintained may have as much value as newer equipment that hasn’t been taken care of. You and your team have complete control over the physical assets of your company, and it’s in your best interest to keep them up.

The good news is that a well-planned exit gives you the time to correct any of the conditions that might lower your company’s value on the market. Getting a business broker involved in your planning early increases your chances of getting all you can out of a sale.


This blog was originally written by Joe Shemansky, MCBI, M&AMI, CM&AP, CBI. Joe is the Principal Broker-Owner of We Sell Construction Businesses (www.wesell construction businesses.com), which is headquartered in Clermont, Florida. We Sell Construction Businesses provides business brokerage and M&A transaction services to main street and lower middle market construction business owners, looking to sell their businesses. He can be contacted at 352-404-9191 or joe@wesellconstructionbusinesses.com.

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