In our Value Builder series we explore the eight key factors potential buyers review when looking to acquire a business – maybe yours!
What is Business Growth Potential?
“Growth is never by mere change; it is the result of forces working together.”
– James Cash Penney, Founder of JCPenney
A company’s future ability to generate larger profits, expand its workforce and increase production and distribution defines some of the key elements of growth potential. Growth however, introduces a variety of complexities that are not without their own challenges. By identifying the different ways in which you can grow and by determining whether the time is right for your business is crucial for success.
Those purchasing businesses typically pay a premium for those with the potential to grow. In rare cases, an acquiring company may even buy a business that has a high growth potential, but is low on other attributes. The purchaser will see a way to leverage some of their own assets to help the business grow much more quickly than it could under its current owner. This type of transaction is known as a strategic sale and by definition the buyer is called a Strategic Buyer. This differs from a Financial Buyer who is mostly interested in how much profit is being generated now and into the future.
To understand the relationship between growth potential and value, imagine that instead of generating a flat $1,000,000 in profit for the next 10 years, the hypothetical business owner expects profits to grow by 20 percent each year in the future. For a perspective, according to researcher David Birch, less than 2% of American companies grow by 20% per year for three consecutive years.
A business expecting a 20 percent growth rate over the next 10 years is worth more than double the business, which expects its revenue to remain flat.
The potential growth of your business reflects the extent to which you believe your business can grow in the future by selling more products and services to your existing customers or by acquiring new customers quickly.
A strategic buyer is looking for a 1+1=3 formula which means that by acquiring your company it allows them to reach into new markets or adds more offerings. In other words the two companies (ideally) are stronger together.
Upon completing a complimentary Value Builder questionnaire available from The Osborne Group, you will receive a Value Builder score that covers eight key factors that contribute to your overall business value.. The questionnaire is part of a system developed by internationally recognized small business expert John Warrillow. Your answers will indicate what drives up, or undermines, your company’s value. The questionnaire takes just 15 minutes to complete online and generates a detailed report an Osborne Group Certified Value Builder consultant will review with you during a complementary two-hour follow-up meeting.
In our upcoming blogs, we’ll examine other Value Builder factors and their impact on your company’s worth. Follow us here for the series:
To find out how your company is performing, click here to take the Value Builder questionnaire: http://www.thevaluebuildersystem.com/osborne-group