How is a Business Valued

Important Points for a Business Evaluator to Consider before Buying a Business

Just like any other huge investments, buying a business or a company requires planning and careful decision making. The process is usually meticulous, if not overwhelming, as this involves financial, legal, and social issues.

One cannot afford to make a mistake when buying such a huge investment. A company buyer should research and investigate the business he will buy, as even some of the most successful businesses are not without problems. With this, he can ensure that he is making a good decision.

Before buying a business, the buyer can create a business evaluation checklist to assist him in his investigating and determining whether the business is a good investment. Usually included in the checklist are the financial conditions of the company, its value, its image, and its employees.

The business evaluator should inquire first the reason behind the current owner’s decision to sell his/her company. Is there a decline in budget? Do they lack sales? If this information is withheld, then it is a risk to buy the company and one may end up purchasing a failing business. If one decides to buy the business despite its decline, he should also consider if he can be able to make it successful.

A business evaluator should also know the current financial condition of the prospect company. It is also prudent to investigate the other financial matters of the business, like assets and liabilities, previous losses, tax returns and others. A buyer should also know the value of the company. One can opt for the service of a business valuator or business appraiser for these tasks.

The business evaluator may also ask questions related to the company’s debts, customers, marketing strategies, exclusive rights and patents for any of its products, market share, and competition in the market. He/she may also ask the current equipment available and wages of employees

Once the business evaluator decides that a company is suit for purchase, the buyer should not ignore the current company image. As some companies or brands have established an image that made them familiar to consumers, changing their image can affect the company’s marketability.

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