Factors that Increase or Decrease Business Value
By: George D. Abraham
CEO & Chief Appraiser
Business Evaluation Systems
There's a range of key factors that can affect the value of a business. While some of these factors are outside of the owner's control, steps can be taken to make the business as valuable as possible. Start planning well in advance and consider inserting an exit strategy into your original business plan. Then start implementing the factors that increase value and eliminate the factors that decrease the value.
Just how good are your financials. Are they minimal or do they show an in-depth look at your business. Can you easily track the flow of revenue and expenses flowing from the invoice to the financials to the tax returns? Can your track the sales of your top 5 customers? Can you easily prove all of the perks you receive from the company? Today's accounting software easily lets you do all of this and much more. When a buyer is interested in a company, the ease at which the owner can prove the financial performance of his or her business has a direct impact on value. Incomplete or inaccurate financials tells the buyer that no one is watching and tracking the Company's performance and therefore the future performance (of real importance to the buyer) is unpredictable. Value is created or destroyed by the ability to see the Company's future. The longer the buyer can see that the Company will perform in the future as represented, the more secure they are and less risk is perceived. To the contrary, when the future is a guess, risk is increased and value is decreased.