Value vs. Salability: Enhancing Your Business’s Market Position

A topic that continuously piques the interest of business owners (and something we enjoy talking about) is how to elevate the value and salability of your business. While most are adept at influencing financial statement line items like revenue and expenses, unraveling the complexities that genuinely drive business value can seem daunting.

Understanding Value

The primary driver of a business’s value is its recasted earnings. Business owners frequently manage operations to minimize taxable income throughout the year. However, before accurately valuing a business, a process called “recasting” is essential. Recasting involves adjusting the financials to eliminate discretionary expenses, providing a clearer picture of the company’s true cash flow—key to understanding what the business genuinely produces, irrespective of ownership. The rule is simple: higher recasted earnings translate to higher business value.

There are some other factors that impact value, such as revenue size, growth, and industry outlook, but the main driver for most businesses comes down to recasted earnings.

Distinguishing Salability

While value is quantifiable, salability relates to how attractive a business appears to potential buyers. It’s about the marketability of the business beyond just numbers.

Key salability factors include:

• Owner Involvement: A business overly dependent on its current owner for success is less attractive, as this can signal a challenging transition for new ownership.
• Financial Transparency: Clear, well-documented, and trustworthy financial records increase buyer confidence.
• Curb Appeal: Both physical and digital presentations of the business can influence a buyer’s perception. An appealing storefront or a professional website enhances attractiveness.
• Industry Outlook: Businesses in growing or stable industries are more salable than those in sectors that are declining or becoming obsolete.

Interestingly, features like an attractive business name, prime location, or modern office spaces may not significantly impact valuation directly but they DO enhance salability. These elements can make the business more appealing on the market, smoothing the path to a sale.

How Salable is Your Business?

When you’re ready to discuss what your business is truly worth and start the valuation process, give us a call at 678-988-1495. We’re here to help you understand and enhance both the value and the salability of your business.