How to prove your business’s value to buyers or investors

In the dynamic world of business, being able to effectively communicate and prove your company's value to potential buyers or investors is essential for growth and success. Whether you're looking to secure investment or sell your business, showcasing its true worth is a crucial step

When selling a business, a buyer or investor and their advisors will typically ask to see your last three years’ financial statements, as prepared by your accountant.

This is the base level of information that external parties usually start with and it’s important because it shows things like receipts, payments, liabilities and assets, profits, losses, increases or decreases in equity, and cashflow position, i.e. critical evidence of performance.

However, when it really comes down to determining the value of your business and convincing a willing buyer to take on its risks and opportunities and pay an optimal amount for it – including the value of assets, but also some goodwill – you need more than just financial statements, because the smart buyers don’t stop there!

The businesses we’ve seen do well in transactions are ones that have also had transparent, credible evidence of performance relating to all the factors including customers and their relationships, delivery of projects, and pipeline.

Here we explain how evidence of performance matters the most.

Evidence of performance is crucial when trying to prove your business's value to potential buyers or investors. It provides tangible and quantifiable data that demonstrates the success and viability of your business. Here's how evidence of performance can help in this context:

1. Credibility: Concrete evidence of past performance lends credibility to your claims about the business's value. Numbers and data are harder to dispute than mere assertions.
2. Track Record: Demonstrating a consistent track record of positive performance showcases your ability to execute your business strategy effectively. It shows that your business isn't just a concept but has a history of delivering results.
3. Risk Mitigation: Investors and buyers are always concerned about risk. Evidence of performance helps alleviate these concerns by showing that your business has already overcome challenges and achieved success. This reduces perceived risk and makes your proposition more attractive.
4. Validation of Business Model: Actual performance data validates the viability of your business model. It proves that there is a demand for your product or service and that you've figured out how to generate revenue and profits.
5. Comparative Analysis: Performance data allows investors and buyers to compare your business to industry benchmarks or competitors. If your business is outperforming others in relevant metrics, it's a strong indicator of its value.
6. Projections and Forecasting: While projections about the future are important, having historical performance data lends credibility to your future projections. If your past performance aligns with your future projections, it's more likely that investors and buyers will trust your forecasts.
7. Negotiations: When negotiating terms with investors or buyers, evidence of strong performance gives you leverage. It demonstrates that you have a valuable asset, and this can lead to better terms for your business.
8. Confidence Building: Evidence of performance not only builds confidence in investors and buyers but also within your own team. It boosts morale and encourages everyone to work towards achieving even better results.
9. Communication: Performance data provides a concrete basis for discussions and presentations. It helps you communicate your business's value succinctly and effectively, making it easier to engage potential investors or buyers.
10. Due Diligence: During the due diligence process, investors or buyers will delve into your business's operations, finances, and performance. Having readily available evidence of performance streamlines this process and reflects positively on your transparency.

To effectively use evidence of performance to prove your business's value, consider creating well-organized documentation, reports, and presentations that highlight key performance indicators (KPIs), financial metrics, growth rates, customer testimonials, case studies, and any other relevant data points.

💡 Confidence is key

Evidence of performance is about giving a potential buyer confidence that when they scratch the surface there is a robust position underneath. And it’s about being able to genuinely communicate the level of risk/return associated with the business.

And as a business owner, keeping up-to-date evidence of performance will not only help you when trying to attract an external party for financing, investment or sale, it will also provide a key management tool to improve business performance into the future.

If you would like advice on business value by knowing the true worth of it, contact MPRAM team on  +1 (404) 910-5728 or email us at valuation@mpram.com for a confidential, obligation-free discussion.

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