Marketability Assessment

Working daily with entrepreneurs provides our firm with a unique window into what drives them, how these folks think and solve problems, and how they build great business enterprises. It’s fascinating to see how such folks employ sound strategies to grow their business.  As a matter of fact, the most efficient entrepreneurs have figured out how to articulate the objective, scope, and advantage of their business in a simple statement.

And after pouring their heart and soul into building something special, smart business owners know that gradually applying these tactics will impact future value many years before considering an exit strategy to transition to new ownership. When it’s time to cash-out, these owners will employ a Marketability Assessment as an early strategic step to start the transition process taking advantage of the benefits that such assessment provides:

• Increased Valuation: The assessment empowers the owner to address weaknesses before they become apparent to a prospective buyer, giving you leverage toward a higher value during negotiations.
• Targeted Marketing: The assessment allows owners the chance to tailor a marketing strategy to attract the most suitable acquirers, maximizing chances of a successful deal.
• Improved Deal Readiness: The process allows owners to proactively address structural concerns before entering negotiations. By addressing potential issues early on, buyers will see a more resilient and sustainable business, shored up and prepared for the scrutiny of due diligence.
• Stronger Negotiating Position: A clear understanding of a company’s competitive advantages and marketability empowers the seller to negotiate from a position of strength.

What is a Marketability Assessment?

A Marketability Assessment is an invaluable tool that could mean the difference between a good deal and a great one for mid-market companies. The marketability assessment serves as a secret weapon, making a business more attractive to more potential buyers before going live to market.

By answering a series of questions – survey style – our firm analyzes a business through six different metrics, potentially identifying areas for improvement.

• Financial Performance
• Market Position/Competition
• Customers and Sales Growth Potential
• Supplier/Customer Dependency
• Owner/Management Dependency

A comprehensive report identifies a company’s strengths and weaknesses, and will later be discussed with one of our professionals. It goes beyond the financials, giving relevant insights on how to improve a value proposition and command a higher price.

The Analysis in More Detail:

Financial Performance: Strong financials are obviously a major selling point in any transaction. Most owners understand lowering their risk profile by dissecting their cash flow and highlighting their financial health. This assessment will carefully analyze profitability, growth trends, revenue diversification, and debt levels. Evaluating a business’ internal processes, cost structure, and overall operational effectiveness leads to more streamlined operations – key ingredients of a profitable and attractive company.

Market Position: Though it may be hard to judge market share, it is important to evaluate the business’ competitive landscape, customer base, and industry trends. Each market discovery aids in crafting the most effective marketing campaign. Directly addressing the growth potential within an industry can be achieved by becoming a niche leader or operating in a high-growth market. A recent search firm that we sold had a very specialized niche in the higher education industry and was well-known and respected by their competitors.

Customer Base: A strong, loyal customer base with a recurring revenue stream is very important for acquirers. This demonstrates a stable foundation for the future profitability and long-term viability of the business, as long as it is not too dependent on a small, focused customer base. A diversified client base and not becoming reliant on a single large client or a small group of customers is the key. One recent sale had to be structured with a deferred payment earn-out to minimize the risk incurred by having one client responsible for over sixty percent of company revenues. 

Growth Potential: No buyer will invest into the “status quo”, every buyer wants to see growth. By analyzing future growth prospects, new market opportunities, and the scalability of the business’ current business model, one can set realistic goals on how to expand. Actions that demonstrate a company’s commitment to achieve future growth involve new market expansion, new products or services introduced, or acquiring complimentary business by expanding operations to reach new customer segments.

Dependencies on Suppliers: Having too few supply vendors can be solved by developing relationships with multiple reliable suppliers for critical resources. This minimizes the risk of disruption if a single supplier encounters problems.

Owner & Management Dependency: This analyzes dependencies on key employees, most often the owner. The experience, capabilities, and reputation of a company’s leadership team are critical assets. A strong management team with a proven track record inspires confidence in the acquirer’s ability to maintain and build upon your company’s success post-acquisition, ensuring that the company’s success will continue after the sale.

The key to building a self-sufficient management team is to delegate tasks effectively and trust a qualified personnel staff to contribute their ideas and make decisions. This fosters ownership and develops a strong management team that can run the business effectively.

Who Conducts Marketability Assessments?

To ease the complexity of navigating the M&A landscape, our firm provides a proprietary Marketability Assessment via an online “interview” as a first step – not committing the business owner to any other action. This can be done out of the comfort of a business owner’s home at a convenient time.

In preparation for every sale, our valuation professionals then use this Marketability Assessment to quantify the Fair Market Value of the operations, significantly increasing chances of a successful M&A transaction.

If you like to take the first step, please go here.