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The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

Buyer Be Aware ! How to Position Your Company for Maximum Exit Value

Chris Blees
Friday, October 7, 2011
Chris Blees
What color of car would you rather buy? Based on your personal preference, the answer to this question will affect how much you are willing to pay for a vehicle that is identical in all aspects other than color. What has this got to do with the Market Value of your business you might ask? Well, simply put, traditional valuation techniques generally ignore one important factor in their calculation, the buyer.

Don't get me wrong, a traditional valuation certainly has its uses, particularly for IRS and litigation cases, such as determining value for a divorce settlement. However, they usually all assume a willing buyer exists and that this buyer doesn't have any personal preferences outside of the normal industry standards.

Let's just go back to the car example, assuming a dealer has two used cars that are the same make, model, year, etc., but one is blue and the other is silver. They will almost certainly be priced exactly the same. However, if your preference is for a blue car, you would no doubt buy the blue car. In fact, the dealer would have to discount the silver car for you to consider that as an option. Therefore, your preference has effectively determined a higher value for the blue car over the silver one, despite the market suggesting that they are both worth the same.

So how do you apply this logic to the value of your business? If you're thinking about selling your business sometime in the future, you probably have no idea who will buy it and what their preferences are, so what can you do now to position your company to maximize value from an exit, and where do you start?

In terms of business acquisitions, there are generally two main buyer groups, each with very different views of what is important to them. These groups consist of Financial and Strategic buyers. Financial buyers generally consist of individuals or groups of individuals looking to invest in a business, whereas a Strategic buyer is normally a company looking to add to its existing operations.

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