Future profit potential, and how much you can impact that future, is the most important intel you can have when purchasing a business. Future growth will ultimately be the measurement of the merits of the investment and is key to your achieving a good return.- Is there is a skill set that the current owner is lacking, that you possess. For example, a stronger marketing background or more technologically inclined.
- Are there additional markets that a new owner should pursue?
- What additional products could be delivered to existing customers?
- Where are the best profit margins realized and can they be expanded?
- Can the technology be licensed?
- Will demand for the product or service increase as population grows?
- How will enhanced marketing campaigns and sales efforts affect growth?
- Are there opportunities to grow through acquisition?
- Can growth be achieved by expanding geographically, increasing manufacturing capacity, or adding multiple locations?
- Would additional hires impact growth?
- Or, would streamlining the workforce be more beneficial?
- Is franchising feasible?
- Are there online strategies ripe for growth?
- Are there areas to explore that could decrease operating costs?
- Would the company benefit through additional workforce training and education?.
Most business pricing models have two major components: a base, usually revenue or profit, and a multiplier. To get the base you need a clear view of the revenue picture from previous years, the historical performance. The multiplier is derived from industry-specific ranges. That multiplier is actually the number of years it will take to recoup the price you just paid for the business, assuming it doesn’t grow (or shrink.) Having a clear view of the future – and how much you can impact that future – is the most powerful intelligence you can have when determining the soundness of a business investment.
