In the September 2014 Mergers & Acquisitions magazine there was mention of how in today’s market sellers and investment bankers are trying to get “A” prices for “B” businesses.
Surprise, surprise! I don’t think it’s just in today’s market. I don’t think there are too many, if any, business owners who think they have anything but an “A” business. It’s just like how every football fan feels that the NFL draft gave their team the missing pieces to win the Super Bowl.
First let me state that to me any business making a profit after paying the owner a fair market salary for the work he or she does is a “B” or better business. To get to the “A” level (as a small business, which is different than if it’s a middle-market business) a business should have the following usual suspects (of a quality business):
- A management team, which means the owner can take off for a month with no disruption.
- Consistent and growing profits, again, after paying the owner a fair market salary.
- Sustainable growth with an understanding of why growth is occurring (quality of earnings).
- Achieving scale as it’s rare to see a business doing under $5 million in sales be an “A” business.
- Solid financial systems and accurate financial statements.
- Be a leader in product quality, service and innovation.
- Customer and vendor diversity, loyalty and strength.
“A” businesses will make more money, provide the owner more free time and sell for more money. Why not strive to become an “A” business, or remain as one if you are.
“The free thinking of one age is the common sense of the next” Matthew Arnold