Eight marketing factors that can influence business valuations
By Paul Weber, Chief Strategy Officer
Make no mistake about it, marketing seldom influences a business broker’s small business valuation. Cash flow, debt, profitability, processes, inventory, assets, liabilities, leadership and many other factors drive the value of most businesses. However, marketing should not be overlooked or ignored during a business valuation purchase or sale.
“I’m selling my business!” you say? Here are the eight most frequently cited factors that can influence your business broker’s business valuation. The information was compiled from our experiences with nearly 300 companies and input from several business valuation clients. Our own advertising agency has conducted several valuation exercises over the past several years.
“I’m buying a business!” you say? Keep this checklist handy to ensure you don’t pay for something you don’t receive in the transaction.
Have no plans to sell your business soon? Read the list anyway and see how the actions you take today can impact your business valuation in the future.
1. Goodwill and Brand Reputation
Goodwill is a measurable financial asset that can be quickly whisked away by a bad reputation. Whether you know it or not, your company may already have a brand reputation – good or bad. It can be found on many social media platforms including Yelp, Google Reviews, Glassdoor and the Better Business Bureau. Identifying and interpreting your company’s reputation takes some time and expertise. Reputation repair can take even longer. EAG Advertising offers small business brand management services, including those that prepare you for a potential sale of your business.
2. Social Media Asset Ownership
Who owns your social media accounts? You might be surprised to learn your business doesn’t own its own social media assets. If you’ve worked hard to earn a positive social media presence, all can be lost if a key employee established your accounts in their individual name rather than your business name.
Although it’s unlikely that missing social media assets would sour your deal with a potential business buyer, it certainly won’t help create a smooth transition. If you are on the buying side, be certain all social media assets are accessible and verified as legitimately owned by the business.
3. Prospect and Lead Lists
If your prospect and leads aren’t safely secure in a CRM (customer relationship management) tool, you have put your business in a position of less value to a business broker and prospective buyers. All too often, sales teams are given the latitude to manage their own leads and prospects. This pipeline of future sales should never be put at risk and left in the hands of anyone other than business ownership. This is an asset with huge value to a new owner. Get a CRM, instruct sales to use it and lock up your leads.
4. Brand Intellectual Property
Have a really catchy name and logo? Did you invest a lot in that cool website and all your branding materials? If you are selling your business, be sure your intellectual property rights are firmly intact. If you are a buyer, take the time to guarantee that what you are buying is rightfully yours.
A retailer and installer of replacement windows had built a solid three-location business in Southwest Florida. An interested buyer made a very attractive offer to buy the business and all its assets, giving the owners the business exit they had hoped for. During due-diligence, the buyers discovered a similar business operating under the same name in Kentucky. The business in Kentucky had growth plans of their own and a tightly-controlled trademark of the name.
The price tag to rename the company, rebrand building and truck signage and overcome years of marketing, was enough to sour the deal.
5. Brand Name and Identity
Selling your business? Is your name and picture on the side of all the trucks, buildings, equipment and advertising? It happens all the time. A business owner brands their business closely with their own personality and identity, but what happens at the time of a sale?
Buying a business? A business name with a singular identity tightly tied to an individual can present many problems. There can be tangible costs associated with buying or selling a business with a singular brand name. There may also be goodwill costs for the buyer or the seller, depending on how that name is perceived in the community.
6. Marketing Plans, Processes and Procedures
Although we’ve never seen a business valuation change because there was no marketing plan, you can be certain that well-thought marketing plans, processes and procedures will make your business more attractive to a business broker or potential buyer.
7. Customer Loyalty and Diversity
Buying a profitable business is your ultimate goal. But what happens a year or two after the sale is complete? Will you still be glad you made the purchase or regret that you didn’t spend the time and effort to understand the loyalty and diversity of your new business customers?
Customer loyalty is difficult to accurately measure, but it is not impossible. Are customers committed to you with long-term contracts? Are they engaged with ongoing service agreements and other recurring revenue mechanisms?
How diverse is your customer base? If you lose one, two or 10 customers will you still be profitable and sustainable? Are you at greater risk because too many of your customers come from one source, one industry or one relationship?
8. Contemporary Marketing Systems
Marketing systems have value. If you were buying a manufacturing company you would certainly take a long hard look at the condition of the equipment in use. Considering that a really robust website can cost as much as a new piece of equipment. Shouldn’t you evaluate the condition of the marketing systems, too? The value of contemporary marketing systems is easy to measure and the benefits are considerable.
EAG Marketing Audit
Selling a business? EAG Advertising & Marketing offers a marketing audit that can identify strengths and weaknesses in a company’s marketing and branding long before any sale occurs.
Buying a business? Don’t overlook the very assets that will make your purchase a lasting investment. Call us to discuss how we can help you determine the marketing value of the business you are buying or selling.
About Paul Weber
Paul Weber is the CEO and chief strategy officer for EAG Advertising & Marketing, an advertising and marketing firm dedicated to helping evolving companies learn and use big brand strategies.