- December 28, 2017
- Posted by: admin
- Category: Business Brokers, Business plans, Buying a Business, Competitive research
Knowing your business’ value is crucial to success in any industry. The value can only go so far unless you know what’s causing it to remain in its’ current state or even decline. Whether you’re happy with where your business’ value is, or if you’d like to switch things up and shoot for a higher goal, identifying key factors that affect private business value is essential to maintaining a profit.
We’ve spoken before about how to estimate your business’ value, and recommend calling us for exact answers before moving into identifying the factors that affect your business’ value and assessing how to manage them. There are, for the most part, about five factors that are consistent across the board, no matter what the industry is. Like anything in relation to your business, the factors that are hitting you the hardest are personal and will vary. Even if you run an IT company, and your competitor offers the same services, you both might have different critical factors due to location, clientele, availability, or more. For the most part, businesses will depend on the following, in no particular order, to be successful:
1. Profit Margins
Clearly recognized as a crucial part of a successful business, your profit margin surprisingly is not the most important aspect of your business. It is, however, extraordinarily important and should not be overlooked. Your business volume may be off the charts, but if you’re not turning a general profit, your business won’t succeed.
2. Competitive Advantages
Having a natural advantage or having to fabricate one by, for example, moving to a popular location for your field, is a central piece of the puzzle that is success. Sustainable advantages serve as a protective field against intrusive competitors that might try to break into your profits.
3. Historical Growth
Also known as your revenue trend, your historical profit growth and its ability to be consistent will be a gleaming window into how well your business is performing and will perform in the future. With consistent growth and little to no fluctuation, you can make safe decisions regarding how to proceed on major financial decisions.
4. Customer Span
There will never be a way to appeal to every single person, but reaching more than just a small, concentrated customer base is crucial in business success. Imagine you only have one customer. While that single customer might spend enough money to keep your historical growth consistent, your profit margin wide, and your company making money after taxes and operating costs, if that customer leaves, you will be stranded. A well-diversified customer base will lower the risk your company shows to competitors and buyers.
5. Customer Dependency
In the same vein as customer span, you must always ensure your business doesn’t lean too heavily on a select few customers. Having 90% of your revenue made from 10% of your clients is a recipe for disaster, and buyers won’t be likely to invest in your company with such a small base.
The five factors above are not a comprehensive list by any means, but a successful business relies on a litany of key points that are not consistent across any industry, and we always recommend meeting directly with us to address what could be affecting your business’ success.