SME – Consider Valuation Beyond Financial Performance

SMEs can outperform in terms of financial performance many large corporations – hands down.

However, when it comes to real deal making the buyer can have second thoughts about the excellent SME financial performance due to the “smallness”.

The investor will discount the excellent SME financial performance by trying to find answers to following questions:

  • What effects do one key person leaving the company has to the performance?
  • What is the effect if one or two customers are suddenly buying from competition? More importantly, what does it take to get up to feet if a  large customer stops buying?
  • How to find new skilled employees?
  • In what phase of the product life cycle are the products?
  • How to advance product development and when?
  • What is the capacity reserve and how to implement more capacity?
  • How to get more sales and how to even keep the current sales level?
  • How flexible is the work force and employment laws when it comes to temporary employee reduction?
  • Can I serve with the current crew international customers?

Way too often I experience with SME owners, that they perceive their business as “a constantly and easily performing business” even in the future. Perhaps this is true, however the potential partner, being an industrial company or financial investor, will consider the value and potential beyond the past financial performance.

SMEs owners must carefully prepare these scenarios, not only if in need of partners, but also during normal course of operation.

Being prepared to these questions while running a business can make an SME much more successful and alert to abrupt market changes.

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