Operations are a broad category that can greatly affect valuations. The following is an examination of each component of your operations as it relates to value.


Do you employ strong systems and controls in your business? Are your business’s operations, policies, and processes thoroughly documented? Well-documented systems, processes, controls, and forecasts improve the manageability and scalability of your business and, thus, its value. 


How modern are your operations? Buyers prefer facilities that are up to date and that don’t have deferred maintenance. Modern, up-to-date facilities are worth more than those that are not.

Do you own the real estate your business occupies or do you lease it? If you own the real estate, are you paying your business a market rate to rent the premises? If you own the real estate and your business is paying below-market rental rates, consider increasing the rent to market rates. This market-rate rent will more closely reflect the amount the buyer will need to pay if they buy your business. 

If you lease the real estate, is your rent above or below the market rate? If your lease is below the market rate, the value of your business may be higher than a comparable business with a lease at the current market rates. The reverse can also be said – a lease at above-market rates will negatively affect the value of your business.

If your business has a long-term lease, this also reduces risk for the buyer. If location is critical to the success of your business and you don’t have a long-term lease, not only will the value of your business be affected, but your business may prove to be unsalable. 


Can your business be relocated to another geographic market? If so, this increases your marketing options, thereby increasing the probability of successfully selling your business for top dollar. If your business would be difficult to move to a new market and is located in a smaller geographical area, your options for successfully marketing your business are less than if it were located in a highly populated metropolitan area.


Do you lease any equipment? If so, are the leases structured as capital or operating leases? Will the leases be paid at closing? Any drain on cash flow, such as an equipment lease, will lower the value of your business.

Is your equipment up to date? Is there any deferred maintenance? If a buyer must replace equipment because it’s out of date or if you have deferred maintenance, your business will be worth less than if the equipment is in tip-top shape.


What are your minimum inventory requirements? If your business requires a large amount of inventory on hand to operate, this increases the working capital requirements for the buyer and potentially decreases your business’s value. 

If your business requires a lower-than-average amount of inventory, this increases the overall return on investment (ROI) for the buyer. If your business requires a higher amount of inventory than other businesses or industries, this must be factored into the purchase price. Many buyers factor the inventory into the total investment when calculating their multiple and projected returns. 

For example, if the cash flow from a business is $3 million per year and we have priced the business at a 5.0 multiple, the business will be priced at $15 million ($3 million x 5.0 = $15 million). But if there’s $3 million in inventory (total purchase price = $15 million + $3 million = $18 million), the multiplier will be 6.0 ($18 million / $3 million = 6.0) if inventory is included in the calculation.

I was once selling a party rental business that had $1 million in EBITDA and over $2 million in inventory. A business of this type and size might normally sell at a 3.5 multiple of EBITDA, or $3.5 million. But if we added inventory to the price, the business would be valued at $5.5 million, which would equal a 5.5 multiple. If the owners sold the business at $3.5 million, this would only net them $1.5 million after the value of the inventory. Unfortunately, this transaction didn’t make sense from either the buyer’s or the seller’s viewpoint due to the high amount of inventory necessary for the business to operate. As a result, the business didn’t sell.

Well-documented systems, processes, controls, and forecasts greatly improve the scalability of your business and, thus, its value.