One of the important issues in valuing a company is the sustainability of sales and income. It is a major issue in the due diligence process. It is also one of the most difficult to assess since many of the factors are so subjective. To bring things into focus, here are some of the factors that should be considered in looking at the sustainability of sales and profits:

• proprietary products and/or services
• market share
• customer concentration/broad distribution
• quality of financial systems
• depth of management
• seasonality/cyclicality
• current appraisals on equipment & real estate

A few of the questions a buyer may be trying to answer are:

• Is the company’s market position weaker than purported?
• Is the competition weaker or stronger than represented?
• Is the market struggling or growing?
• How does the company “benchmark” against the competition?

The analysis of the above factors and questions are a necessary part of not only the valuation process, but also the areas that a prospective buyer would investigate.

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