1. Business Valuation:
What Else Counts Besides Profits?
Value Drivers
of Business Sales
by Glen Cooper
Business Broker / Business Coach
www.GlenCooperColorado.com
Buyers are often attracted
to certain businesses for
reasons other than reported
profits.
They will even pay premium
prices for businesses if they
see other factors that matter to
them.
Just what are these other
factors?
That’s what this article is
about. Prospective sellers take
note! See also the
companion article:
“Appraising Your Business
in 60 Minutes.”
These “other factors” might
be called the value drivers
(*1) in business sales. For any
specific business and for any
one buyer prospect, these
“value drivers” will be
unique. Generally, they can
be grouped under seven
separate general headings.
What
Business
Buyers Want
If two businesses each have
comparable profits, a buyer
will pay more for the one that
is perceived as attractive or
interesting work.
A buyer will also pay more
for one that has a market
future that is clearly positive,
that has the better location,
whose operating systems
work better, and that has a
clearer track record of proven
stability.
If, on top of all that, one
business has better books and
records and is offered on
more reasonable terms, it will
command a premium price.
● Attractive work
● Strong market position
● Right location
● Working systems
● Proven stability
● Good books, records
● Reasonable terms
It is useful to examine each of
these value driver categories,
and to see why buyers often
pay more than what one would
otherwise expect simply by
looking at historic profits.
_______________________
(*1) The term “Value Drivers” as used in
this article is similar to, but not the same as,
the term used in business economic analysis
defined as “the economic variables that are
critical to revenue and cost functions of the
business.” In the real world of small
business, though, many of the factors listed
in this article do fit that definition.

2. Attractive or
Interesting
Work
Some businesses just look
like fun. From time to time,
certain businesses are
considered “hot.” It should be
noted, however, that
categories of preference
change over time and vary
from buyer to buyer, and that
it often pays to invest in a
business that is NOT popular
at the moment.
Right now buyers will pay a
premium for services,
distributorships and some
types of manufacturing, but
many retailers and food
businesses can be acquired for
lower prices and on better
terms precisely because they
are NOT “hot” right now.
Strong
Market
Position
Corporate buyers just love to
acquire market share by
buying smaller businesses in
the same or similar markets
they already serve. This has
happened recently in the print
media and in construction.
Why? Because the future of
these markets is made even
brighter by synergies that can
be created by consolidation.
Individual buyer prospects,
too, want to be assured that
the future looks bright for
whatever they buy. They
particularly like a business
that has carved out a place for
itself that they can
understand, one that has a
significant market share
already but where sales
increases are still possible.
A few years ago, I sold Points
East magazine to a publisher
that wanted to increase
market share in the reader
market of New England
boaters. I also sold a
commercial painting franchise
where the marketing-savvy
buyer saw a rare opportunity
to grow market share
immediately, even though the
business was already
dominant in its market.
Right
Location
Buyer prospects in Colorado
love to be near the mountains!
They want to live near their
work, either near or in the
mountains, on a lake or by a
river. After that, they want to
be in a property that can be
purchased or leased on
reasonable terms, and which
has room for the expansion
that they are planning. They
also pay a premium for
business premises that are
well-designed, clean and neat.
If they’re buying the real
estate, they want to know that
it is in the path of growth, so
it will prove to be a good real
estate investment.
Location, however, is also
“virtual.” Today, the Internet
positioning of the business is
the “location” that is
important.
Buyers seek and will pay a
premium for firms with well-
conceived Internet websites
and a business operation that
is well connected with high
visibility and a strong
following on the Internet.
MysaleofMaineLobsterDirect.com
a few years ago is a good
example of this. The owner
was paid a significant premium
for inventing a business with a
great physical and virtual
location. It was on the desirable
Portland, Maine waterfront
AND it had a great website.
Working
Systems
All businesses have
management systems,
marketing systems, sales
systems and operations
systems. Effective and
efficient systems empower
employees to be productive
and happy. Acquiring a
business that has good
systems in place is always
worth a premium.
Businesses with working
systems also maintain their
equipment, their vehicle fleet
and their computer systems,

3. keeping everything up to date.
They keep their inventory for
resale current. They have
good systems, procedures and
operations manuals.
Systems also keep businesses
out of trouble. A business that
knows what it is doing is
more likely to be in good
standing with its vendors and
its bank, and is not likely to
have pending or expected
litigation to worry the buyer.
One of the most successful
smaller businesses I ever sold
was Shads.com, a promotional
specialties company. It’s still
successful today, many years
after I sold it. Why did its
current owner pay my seller
client a premium price at the
time? One very big reason
was that it was set up to make
money for him from the very
first day. The systems
worked. They still do.
Proven
Stability
Buyer prospects like stability.
Unlike the “entrepreneurial”
types who start businesses
from scratch for the thrill of
the start-up process, business
buyers are more managerial
than entrepreneurial.
They like “turn-key”
businesses that already have
absorbed all of the initial
start-up pains.
If buyers wanted start-ups,
they would start them. They
don’t. That’s why they buy
instead. They want the
stability of the business that is
already established. They
want to know that the seller
will stand with them for the
transition period.
Seeing the historic trends and
structures gives buyer
prospects comfort to move
forward. They want to avoid
making a big mistake.
Good Books
& Records
If all the other factors above
are in place, the business
probably also has good books
and records. Buyers typically
want to see three years of
Federal income tax returns, as
well as any corresponding
financial statements, whether
compiled by a CPA, or
internal from a program like
QuickBooks®, or both.
Buyers like to see detailed
sales histories by month and
by product line or service, and
detail of all the costs and
expenses by month for at least
the last two years.
They also pay premiums for
businesses with good
customer relationship
management (CRM)
databases of past and current
clients and customers.
I once sold a one-person
service business where,
because the owner suffered
from Attention Deficit
Disorder (ADD), his wife had
compiled a super-detailed
step-by-step operations
manual. It was this systems
manual that most impressed
the buyers. They paid nearly
$125,000 in goodwill for the
manual alone!
Reasonable
Terms
Terms offered by the seller
are also critical. The lower the
down payment, and the lower
the amount of working capital
needed, the more buyers there
will be who will look at the
business. I might have called
this “value driver” reasonable
price and terms, but we
discussed price and profits in
the first of this two-article set.
A business with significant
tangible assets to use as
security for long-term loans is
also in a much better position
to negotiate a good price.
A business owner who can
afford to offer seller financing
is in a much better position to
command a premium price.
Sellers who run their business
as if they are going to own it
forever – keeping the pipeline
of future business full for a
new owner – and who will stay
for any needed transition
period are also big winners. 

4. 50 Value Drivers in 7 Categories
1. Business perceived as attractive, interesting and worthwhile work
• Business purpose engages and interests buyer
• Work itself seems attractive
• Seems like the right type of business to acquire now
• Appeals to wide number of buyer prospects
• Business can be run by any talented person with only general business skills
• Special licensing NOT needed to own the business
• Technical training NOT needed to run it
• No special knowledge needed to understand markets
2. Future of market served is clear and seems positive
• Market niche served is clear and easily understood
• Significant share of, or dominance in, market is present or possible
• Growth of market still possible or somehow synergistic to acquirer
• Protection from competition for some reason
• Diverse, broad-based customer list – no concentration issues
• Existence of alternative vendors – no concentration or other supply issues
• Pricing of products and services is competitive
• Brand names, trade marks, trade names, copyrights, patents in place
3. Location is “right” – where potential buyers want it
• Coastal or resort location often preferred
• Accessible to transportation, employees, urban center with business resources
• Business premises available for lease or purchase on favorable terms
• Physical premises allows for future business growth
• Website (the other “location”) is well-designed, linked and up-to-date
• Business is located in the path of future growth
4. Business operating systems are effective and efficient
• Marketing and sales systems are in place
• Operations are smooth
• Employees are trained and experienced
• Computerization and technology up-to-date
• Business reputation in market is good
• Physical premises kept neat and clean
• Furniture, fixtures, equipment and vehicles are all well maintained and performing
• Inventory for resale is clean, current and salable
• Operations manual, policies & procedures all in place
• Credit standing with vendors and banks is positive
• No litigation is pending or expected

5. 50 Value Drivers in 7 Categories
-continued-
5. Operational stability has been proven.
• Well-run for several years prior to selling
• Good growth of revenues on the books
• Reason for selling is clear, and not a cause for concern
• Transition to new owner appears easy
• Profit percentage is stable or growing
• Operating expenses seem normal for the industry
6. Books/records/databases are complete and detailed
• Tax returns agree with internal books
• At least 3 years’ of financial statements are available for inspection
• Sales records are detailed and available by month
• Cost of Goods Sold and Operating Expenses are well documented
• Database of clients/customers current and in place
• Permits, licenses, leases, franchise and other business documents are all in order
7. Acquisition of the business is offered on reasonable terms
• Low down payment and working capital requirements
• Seller financing offered as “bond for performance”
• Has enough tangible asset value to attract banks or other 3rd
party financing
• Business operated to keep future business pipeline full
• Current owner will stay for needed transition