For founders and owners, especially those considering a sale, it can be difficult to see their business from the point of view of a potential buyer or investor. Yet having such an understanding is essential to highlighting a company's strengths and the traits that truly set it apart from its peers and competitors. 

Here, our senior professionals draw on their experience helping business owners optimize their companies’ potential value and share ten essential valuation drivers to consider for a successful sale. 

10 Key Factors to Value a Business

1. Management Team 

Bill Watkins, Managing Director: Strong management is the top value driver in any business. It’s a universal factor, setting the most valuable companies apart from others across industries.  

Financial buyers in particular place a high value on companies in which key leaders drive a healthy culture, a clear vision for the future, a roadmap to reach it, and a comprehensive succession plan to advance talent into the right spots. 

Ultimately, it’s the results that matter. You can measure the quality of the management team by the company’s growth and financial performance. 

Read More: Building a Leadership Team Worth Buying

2. Organic Growth 

Larissa Rozycki, Managing Director: Organic growth speaks to the strength of the business and its sector, as well as to how the business is positioned within that sector. Businesses should highlight organic growth opportunities available to them through new products or services, new clients, or geographic expansion. It is important to show a cohesive strategy around implementation and to demonstrate a historical ability to execute growth initiatives.  

Culture also plays a crucial role in organic growth, with many of the best growth stories featuring culture at their core. 

3. M&A Story 

Watkins: While organic growth shows a company’s ability to reliably bring the right offers to the right audience, inorganic growth shows the pursuit of step-change growth via acquisition. The demonstrated ability to identify and integrate M&A opportunities is often a key theme for financial buyers. 

An M&A story will also help support the thesis that the company is a leader in an attractive sector with strong tailwinds behind it. Buyers are looking for companies with deep relationships in their sectors, an understanding of how to create and cultivate relationships with potential acquisitions, and a reputation as an organization people want to join. 

Read More: 5 M&A Considerations for Business Owners

4. Corporate Infrastructure Scalability 

Kevin Harper, Director: Buyers also place a premium on platforms that have the management team, IT systems, and financial reporting infrastructure in place to support future growth. They're often on the lookout for seasoned management teams with a strong track record of facilitating growth and innovation that lays the groundwork for future organic and inorganic value-creation opportunities. 

5. Strong Industry Reputation 

Rozycki: Having a strong reputation and a widely recognized brand in a segment is rare, and that scarcity value is a key differentiator, having a large impact on valuation. 

Companies that stand out in any area tend to combine an unmet market need, a clear vision for meeting it, and disciplined execution. Businesses that have a well-built strategy and a willingness to adjust when needed for changing conditions, and that can systematically execute against that strategy are highly desirable. These companies consistently attract attention when going to market by speaking to their long-term strategy and showing progress against their goals. 

6. Clear Value Proposition 

Harper: Does the business have a unique and compelling portfolio of products or services that offer clear value to customers? Does it have exceptional customer service or a differentiated user experience? Does it have strong customer relationships that create a defensible market position? 

All these attributes will work in concert to drive a clear value proposition, investor interest and, ultimately, value. 

7. Revenue Visibility  

Watkins: Buyers covet companies with long-term contracts, deep backlogs, and recurring, nondiscretionary services that will provide decades of predictable revenue. For example, businesses with the infrastructure and data analysis capabilities to show past earnings and convincingly forecast future earnings are very compelling to potential investors. 

Read More: Key Quality of Earnings Considerations for Business Owners

8. Financial Profile & Profit Margins 

Harper: Savvy investors prioritize businesses with several years of continued growth and strong margin profiles compared to their peers. They favor businesses that focus constantly on both cost and revenue, and that can adjust to cost fluctuations such as supply chain disruptions or inflationary inputs, as experienced during the COVID pandemic and thereafter. 

However, attractive financials are relative, often varying by sector, geography, company size, and other variables. What buyers want to see is compelling evidence for long-term growth and a management team that can speak to this growth and the company’s performance drivers. 

9. Sector Size 

Rozycki: Buyers will focus on a company’s current addressable market as well as ways to expand its total addressable market through adjacent end markets, modalities, and services. A larger addressable market is seen by buyers and investors as supplying multiple avenues to drive growth. In contrast, a highly fragmented market is also attractive, as it offers plentiful opportunities for value-creation via M&A. 

In smaller or lower-growth sectors, companies can differentiate by showing they’ve thought about market adjacencies that could unlock additional growth. No matter the size, there are many ways to find growth in almost any sector. 

10. Diversification 

Watkins: Most company founders can relate to the challenge of moving beyond their first big customer. Building a diversified book of business—including customers, geographies, and vertical solutions—can be tough, but it yields significant benefits in terms of long-term growth and security. Likewise, too much dependence on a small number of products, services, or markets is a red flag to many buyers.  

Telling Your Company’s Story

While each of these value drivers is important on its own, it’s the way they come together to tell a compelling story that sells the business. When presenting the business to potential buyers and investors, owners should be able to tell a story around each of the valuation drivers highlighted here.  

“This is where an advisor can be helpful,” says Watkins. “The advisor’s job is to use their firm’s industry knowledge and experience to tell the company’s story in the way that will maximize the value from each of the drivers and resonate with each individual buyer. A great advisor positions the business, tells the story effectively, connects the business with the right potential buyers and investors, and maximizes the competitive tension—all of which contribute to the valuation.” 

To learn more about exploring new growth opportunities through M&A, please contact our Family & Founder-Owned Business Coverage team. Our goal is to help clients reach their unique objectives by offering tailored guidance and perspectives on M&A market dynamics, industry trends, valuation perspectives, transaction alternatives, and more.