Product Mix

The types of products and services you offer can also affect the value of your business. 

  • Concentration: How concentrated are your products and services? Is 100% of your revenue generated from one product or service? If so, buyers will view this as risky unless your products and services are insulated from competitive pressure in the future.
  • Products in Development: Do you have any products in development that can add significant value to your business? If so, the buyer will perceive more value. However, it’s wise to hold off on selling your business until the product has been launched and proven viable in the marketplace. Otherwise, you must be prepared to sell your company based on an earnout, in which a portion of the purchase price is contingent on the performance of the product once it’s launched.
  • Degree of Specialization: Does your business offer specialized or value-added products and services, or do you sell a product that’s a commodity? Businesses that sell commodities and that have little to no competitive advantages, such as brand awareness, sell at low multiples. 
  • Outlook: Is the overall outlook strong for your industry, such as in the semiconductor sector, or is the outlook poor, such as that for gas stations? The stronger the projections are for your industry, the higher the multiple you’ll receive for your business. Does your business produce a product or service that’s in high demand regardless of the economic climate, such as food products, or does your business provide a discretionary product or service, such as luxury consumer items? The stronger the demand for your products and services, the more your business will be worth. 
  • Intellectual Property: Does your business produce any products that are protected by intellectual property, such as patents, trademarks, or trade secrets? Businesses such as Coca-Cola and pharmaceutical companies, whose products are protected by intellectual property, are worth more than those that are not.
  • Product Warranties: Are there any limited or ongoing warranty obligations in place? Ongoing warranty obligations represent a form of risk to buyers, which reduces returns.