After careful consideration, you have decided to sell a business and thus the acquisition process is about to begin. This process is characterized by the negotiations conducted between buyer and seller, which mainly concern the sales price.
Both parties want to negotiate a favorable price and usually benefit from reaching an agreement. Here it is of great added value that negotiations are conducted on the basis of well-founded arguments.
Revenue as an underlying factor.
Within SMEs, it is common for the sales price to be determined using an EBITDA multiple. Revenue is one of the most important underlying factors of EBITDA and therefore of the sales price. This makes a comprehensive sales analysis the right basis for starting negotiations on substance.
A revenue analysis highlights the two drivers of revenue separately, price and sales. Are higher revenues expected due to price increases, increased sales or a combination of both? And what factors determined sales trends over the past three years? The turnover analysis creates a better picture of this and also requires extensive substantiation about the feasibility of the turnover forecast.
Growth through higher sales and/or higher price?
Volume effect
The volume effect, where revenue growth is driven by an increase in sales, is often a sign of actual company growth. If previous years' sales analysis shows increased sales each year, this gives an indication of future growth. It is then important to examine whether other important factors support this growth forecast.
In substantiation, the first step is to look at the market potential. Here you can think about demographic developments such as population growth and other trends and developments in the market. Consider, for example, the ever-increasing support for sustainability and digitalization.
It is also important to consider the company's capacity. Is it possible to achieve the projected volume growth with the current number of employees and/or machinery? If investment is required, does the company have sufficient financial resources for the necessary investments? Is the HR policy attractive enough to recruit additional staff? These factors all contribute to the sales forecast and its feasibility.
Price effect
The revenue growth or decline that occurs as a result of price increases or decreases, respectively, is called the price effect. However, this is not necessarily an indication of the organization's capacity for growth. Price increases are often related to developments in the economy and for that reason are not necessarily associated with actual growth of the company.
If price is an important feature of future growth, it is very important to consider your company's strategy. For example, a price increase over the competition is only realistic if the company is so distinctive and has a strong market position.
A comprehensive revenue analysis helps an entrepreneur evaluate the revenue achieved in recent years and determine a realistic revenue forecast. In addition, an understanding of the company's required and expected cost structure is gained. As a result, the effect on EBITDA can be mapped out. If a possible sale comes into play, the turnover analysis provides a good start for negotiations. Both parties gain a better understanding of the realization and feasibility of the revenue and EBITDA forecast. This allows for substantive negotiations, which is a good first step for both parties to reach a possible deal.
