Due diligence may frequently reveal additional facts that may impact value and, subsequently, the price a buyer is willing to pay. Here are some examples :-
Key Personnel :-
It is not unusual for the
owner to function as CEO, CFO and COO. An owner may be making
$200,000 a year to serve in all three functions. A new owner will
most likely have to have three people filling these spots. This
management team will probably make in aggregate a lot more than the
$200,000. The perks required by these three will also be
substantially more than the previous management team of one. As a
result, the cash flow of such a company would significantly decrease
for the new owner.
Supply Sources :-
If the company prides
itself on its low cost of raw materials, how solid are its sources?
What if their nuts and bolts come from one supplier, and this
supplier is in China? A company using a special formula from one
supplier is vulnerable to a change in supplier relations (an increase
in price) or an interruption in supply due to who knows what.
Short-Term Contracts :-
Reviewing the customer
contracts may reveal that they are, for the most part, short term. If
the contracts are with major customers, these customers may require
extra service or even deeper discounts. It costs much less to keep
one existing customer happy than it costs to obtain a new one.
Product Diversity :-
Single-product companies
are at a much greater risk due to competitive products and
competitive pricing. Supply sources also create risk.
Customer Concentration
:-
This is included in all
sorts of lists of concerns whether it's valuing, buying, or selling a
business. However, it is a serious issue. Companies with just one or
two major customers are at great risk. The loss of only one or two
major customers could then impact the company's very survival.
Third-Party Approval :-
Franchises may be a good
business opportunity, but when it comes to selling, buying a
franchise may present a real obstacle. The franchisor usually has the
right to approve the Business Valuation Services Buyer and may impose
other conditions such as an overhaul of the facility or a complete
face-lift. Franchisors may also have the first right of refusal,
which makes it more difficult to sell. Most buyers don't want to
compete with a franchisor and the more difficult the franchisor, the
more likely the buyer is to drop the deal.
Other factors that may
impact the valuation are : ESOP ownership - too many owners;
inventory - too much or dated inventory can present a problem; and
intangible assets - patents, copyrights, brand names, goodwill, etc.
May have great value, but can be very difficult to quantify.
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