External factors that can affect the value of your business
If you eventually want to sell your business, it makes sense that you want to increase the value of it as much as possible before starting the selling process. Whilst there are a variety of factors you can influence yourself, detailed in Hilton Smythe’s Guide to Selling Your Business, there are some out of your control that cannot be helped, detailed below.
1. How old the business is
The older the business, the more likely it is to have higher value, simply because you will have an established client base and repeat customers. This is of course the opposite for startups who may not have consistent revenue coming in yet. However, smart investors will recognise an opportunity for growth, so that’s not to say startups are never attractive to buyers.
2. The reputation of the business
The more well-known you are, the higher your value as you have established a decent client base and are successfully marketing yourselves. If the business has a somewhat negative reputation, new owners will need to tackle this, giving them an obstacle to get around immediately. This could reduce your value as well as the pool of interested buyers.
3. The location
If you are based in a busy city centre there is likely to be a lot of business coming your way, simply because there are more potential customers on the streets. Buyers will also look at the number of competitors in your area. If you’re a small chain competing against huge names on the same road, you may not be able to sell for as much as if you were located in a less competitive space.
4. The reason for selling
Negative reasons for selling, such as a declining market for your product or issues with cash flow, can lower your price as it will not be as attractive to invest in. Whereas if you have a well-established business, but are simply looking to move onto other business ventures, you’re likely to receive a higher sale price.
5. The current economy
This is more prevalent in current times than ever. Buyers are not as willing to take risks now as they were pre-pandemic, and want to make sure there is a definite market for your products once the world returns to normality.
6. The industry you operate in
As above, it may be that your sector has been hit particularly hard during COVID, which may put buyers off as they could struggle to get it off the ground again. However, if there is a huge market for your products, or you are offering something innovative and never seen before, this can be very attractive as there is a big opportunity for profit, therefore raising the value of your business.
In conclusion
There are a variety of factors that can affect the value of your business, some of which can change rapidly (e.g. the state of the economy) and others which you may need to consider longer term. For example, if you’ve been stationed on a busy high street and then a huge competitor moves onto the same street, this is partially out of your control, but you may benefit from considering moving premises. It’s worth considering getting a free business valuation to see how much you could get for selling.
