Building Salable Value in Your Federal Contracting Business

There are two ways to build value you can sell when you retire from your federal contracting business.  First, focus on building a reliable source of future cash flow.  You may have heard that contractors sell for some multiple of historical earnings, for instance five times cash flow.  This is entirely wrong.  Contractors sell for a multiple of future anticipated cash flow..

Imagine a contractor, who made $2 million dollars in profit in 2013.  That translates into a  business worth $10 million at a five times multiple.  That sounds pretty good.  However, what if that contractor’s sole contract ended in 2013 and there will be no guaranteed revenue in 2014.  How much would you pay then for that business?

Past performance only affects value to the extent it sheds light on future performance. You build salable value by creating credible future cash flow and building a system to continue that cash flow after you have left the business.  After all, if the revenue stops when you leave, you have nothing to sell.

Second, you build salable value by creating reliable operating and financial systems that don’t depend on you. Once again, if the work stops when you stop, you have nothing to sell.  Also, if the business doesn’t have reliable DCAA compliant financial systems, expect a buyer to discount the value of your company.  A deficient accounting system gives an unreliable picture of future cash flows and may result in contract back charges.  Those risks mean a lower price for you.

The common thread in the above ways to build business value is you – more specifically – eliminating you.  The less the business depends on you, the more valuable your business.

Thanks for reading!  If you have any questions, please contact me at fstitely@TotalAccountingCare.com.  We take care of your accounting, so you can take care of your business.  Please visit our web site at www.TotalAccountingCare.com to see how.  What would you do, if you had the time?