Let's take a quick look at what business buyers look for when buying a company. Consider two typical kinds of buyers for small-to-mid-sized businesses: John is a private-equity investor who is a savvy business manager with a strong track record of successful business ventures and represents a group of like-minded high net worth investors (often affiliated as a private equity group or PEG); Susan is an aspiring corporate refugee who has put away some capital over the years and wants to buy a business of her own. John may have other business ventures he's managing, a particular return on investment (ROI) target for his acquisition criteria, and certain risk profiles or valuation multiples he's willing to pay. Susan is looking for a primary source of income, a particular "fit" for her abilities, interests, lifestyle and financial capabilities, and also is conscious of the risk, valuation and overall deal structure. A third type of buyer might be an industry insider, maybe a competitor, who wants to grow by acquisition, but we won't discuss the strategic interests of that kind of buyer in this article.

You've undoubtedly heard the phrase "risk-reward" as it pertains to financial investments. Typically, the higher the risk of a particular investment, the higher the anticipated reward or return for assuming the higher risk. As a corollary, lower risk typically yields a lower return. Lending rates for various loans shows that financial institutions consider a real estate first mortgage to be considerably less risky than an unsecured signature loan (much higher interest rate). Moreover, as I can validate from my experience working on the Board of Directors at a credit union, borrowers with higher (more favorable) credit scores are considered less risky and therefore generally qualify for lower interest rates on loans than borrowers with lower (less favorable) credit scores. Perhaps these are intuitively obvious.

Well, business buyers look at risk much the same way as bankers, even if less sophisticated buyers don't articulate this philosophy in quite the same way. A lower risk business generally translates to a higher value sale.

What then, are the factors that directly impact risk and therefore selling price? There are many, but we offer an overview of key factors below. You've probably heard of FICO scores being one of the primary ways that creditors evaluate the risk of a potential borrower. The process isn't nearly as refined or objective as the FICO scores calculated by Fair Isaac and Company. Nonetheless, here is a list of some factors that can impact the selling price of your company:

• stability and direction of sales & earnings trends
• company track record in terms of time in business and history of success with customers
• company growth projections
• competition and market outlook (growing, stable, or declining)
• capital investment required to expand business
• barriers to entry for new competition
• customer/client concentration
• management team & employee retention likelihood
• business location and continuity
• capital investments needed to "fix" operations, equipment & facilities
• documented standard operating procedures and repeatable processes
• acquisition financing availability and working capital requirement
• industry strength
• environment or regulatory risk
• social desirability for new owner
• rate of return

Rate your company on a scale of 0 to 5 for each of these criteria to get a general sense of how buyers, whether the type represented by John or Susan above, would view the possible acquisition of your company relative to other businesses they may be considering as an alternative. Set a plan to improve your company's score in key areas between now and the time you plan to sell so that you can maximize the overall selling price and enhance your deal terms.