When it comes to pricing businesses, there are a plethora of factors to consider and assess, some of which are more important than others. It is quite likely that the business that is trying to sell out could improve in a certain area and increase its asking price significantly. For example, a company X will sell for 50M THB as is or some changes can be made and the same company can be sold for 75M THB. Below is a list of potential company weaknesses companies can use to assess their vulnerability.
If a company generates a significant part of its sales from one or a few customers, it may have to try to broaden the customer base to avoid this dangerous dependency. Companies generally react to this situation by one of the three ways – remain the same and hope for the best; acquire another company with a different customer base; or sell out to another company that would benefit greatly from acquiring the concentrated customer base, especially, if it failed to appeal to such customer before.
One size rarely fits all and businesses betting on this strategy are putting themselves in jeopardy. There is a famous case from the past when General Motors overtook then-successful Ford in sales in 1920. The company understood that car buyers no longer wanted the cheapest and most basic model and thus developed the concept of different models for customers with different financial thresholds and desires.
Regional Sales/Limited Marketing
Tight geographical focus and narrow scoop can act as a brake in any company’s growth. Businesses with national or even international presence have a substantially greater prospects to grow than businesses serving their own region.
Some industries that are at the end of the life cycle may require operating businesses to shift their focus 180 degrees in the opposite direction.
Aging Workforce/Decaying Culture
Trade businesses employing skilled workers may already feel a shortage of a new workers coming from the young generation. This is a sign that overreliance on skilled workforce can prove to be complicated in the future and become the company’s weakness.
Companies wanting to increase the value of their investments should overcome the company’s weaknesses and make sure their growth is independent from the current CEO. Both buyers and sellers are advised to use this tool of assessing the company’s weakness. While some may be difficult to overcome, the long-term benefit will be worth it.