"Profitability is the most powerful driver," says Stewart Kohl, managing general partner for the Cleveland office of The Riverside Co., a leveraged buyout firm. "The company should demonstrate a leadership position and an understanding of its industry."
Leading in a specific niche of an industry is usually all that's needed, but that position should be proven by a high level of profitability.
"We also look for something that differentiates a company from the competition, such as a brand name, a trademark or patents," says Kohl.
These are all obstacles that make it difficult for a competitor to successfully compete against you, guaranteeing the value of the company remains high.
There are things to avoid as well.
"We don't like to see a high level of business concentrated on one customer," says Kohl. "We also don't like technological or regulatory risks. If a business depends on how much Medicare reimburses, for example, that's viewed as very risky."
A change in government policy could wipe out profits overnight. The same goes for technology companies, where today's hot gizmo may be tomorrow's paperweight.
"We always like having an excellent management team too," says Kohl. "That's always a big advantage. It's easier and safer to keep a good management team in place because it's a known commodity, but other times, especially when the owner is the seller and also ran the business, then we may need to bring in someone else."
If you decide to sell your business, be prepared to invest a lot of time into the process.
"For anyone who hasn't bought or sold a business, it is a complex and time-consuming process," says Kohl. "It will consume a lot of resources, so don't embark on it casually. If you are serious, then get good advice from your lawyers and accountants. Make sure you know this is what you want to do."