7 Intangible factors affecting Business Valuation of a Tech Company

As much as business valuation is a “numbers” game, the acquirer always looks at few qualitative information about the seller before he makes any decision. The most important of them are:

1.      Quality of Customers: Quality of a customer is judged by various factors including the quickness of payment, the billing rate, length of engagements, number of projects from a single customer and referral score of the customer.

2.     Location of Customers: A balanced spread of the customers over different continents is always preferred by any acquirer considering the effect of macro-economic conditions on the business. Location of the customer guides the hourly billing rates, translating to better or lower gross margins. In certain cases, the acquirer considers his location as well as his current customer location while evaluating the same. 

3.     Industry of the customer: When it comes to B2B business, growth of your business is dependent on the growth of the customer. Hence, it is always important for the acquirer to see that the customer industry is thriving.

4.     Tech Stack: The importance of the tech stack handled by the business arises depending on whether the acquirer is trying to expand vertically or horizontally. The acquirer would make sure the business is aligned with his goals.

5.     Project Type: The fact that whether the business undertakes work on an engineering basis or supply of resources has an impact on the decision of the acquirer.

6.     Bench size: If you have a very high bench, it is considered as a dead cost and a very little bench is considered as hindrance to growth. It is important to maintain a balanced bench size.

7.     Compliance : Whether the business has complied with laws and regulations and best business practices is something that is important in smooth conduct of business in the future also. Hence, the same is also evaluated by the acquirer. 

While some of the above mentioned points are very relevant and will help decide on acquisition of the business, certain points are factored in the valuation of the business depending on their impact on the acquirer.