Characteristics of a Successful Business – M&A Transactions

Many companies do not reach their potential valuation or maximum selling price. Although there is no ideal business without failure or challenges, companies that sell the highest valuation or top the highest multiple incorporate a number of common characteristics.

1. Increase in income / profits. Cash is a business fuel. There will be a demand for companies with strong financial conditions with annual growth in revenues and profits, and must achieve attractive value.

2. Clean Books. The existence of accurate, detailed, updated and professional financial data and records is one of the most important components of a successful sale.

3. Bright prospects for the future. Companies operating in the industry have a strong perspective of continuous growth in the coming years will be very required.

4. There is no customer focus. Businesses that have a wide and diverse customer base will have less risk than a loss that the customer will have a material impact on corporate earnings and profits.

5. Multiple suppliers. Companies that have a diversified offering of products and / or services with a deep bank of suppliers and partners will be less at risk than a company that relies on a single plant or service provider to generate income.

6. Stable work force. Having a loyal and happy workforce with employees for a long time is always a positive trait for a buyer looking to acquire a private company.

7. Processes established. A company that has written procedures that separate workflow and operations provides greater continuity during business transfer.

8. The owner is not the business. Companies in which the owner runs his or her business experience in exchange for a “business” are less likely to experience a loss of revenue during the sale. Owners who have become business owners are one of the main reasons customers who use their products or services create challenges for the new owner by keeping these loyal customers.

9. Business eligible for funds. Business for sale that meets the requirements for obtaining funds from an SBA-backed bank or lender will benefit from its ability to market them to a wider audience. Some problems prevent third-party financing, including poor financial performance or troubled books, with undisclosed cash and doubtful additions.

10. Professional Consultants. Successful business sales require a team of professional consultants who are experts in their field. Members should include a consultant and expert in mergers and acquisitions, a commercial transaction lawyer and CPA with knowledge on tax structuring and asset allocation. Experienced consultants are worth their weight in gold and will add much higher value than the fees charged.

Ownership of small businesses involves a certain level of risk. The price that the company appreciates should reflect the degree of risk. While the element of risk can never be removed from the property of a small company, the ten characteristics listed above should alleviate many of the problems that cause concern to buyers when they seek to buy. This, in turn, will allow maximizing the commercial value and selling price.

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