Posted 11-10-2008 5:18 pm by
When buying a business, it is important for you to take steps to verify the actual value. This way, you can better determine how much you should pay for the business and whether or not it is a good investment.
When buying a business, it is important for you to take steps to verify the actual value. This way, you can better determine how much you should pay for the business and whether or not it is a good investment. In order to verify the value of the business, there are several things you should take a look at.
Looking at Inventory
One of the things you should look at in order to determine the value of the business is its current inventory. In order to accurately determine the value of the inventory, you and a qualified representative should thoroughly examine your inventory. This includes looking at what is currently in the inventory as well as what was in the inventory at the end of the preceding two years. By assigning a dollar value to the current inventory, you can better determine how much it is worth so you can properly negotiate the cost of the purchase.
Considering Contracts and Legal Documents
In addition to examining the inventory, you should also consider any contracts or other legal documents that the business has in place. This includes documents such as:
It is a good idea to have an attorney evaluate all of these documents before you make a purchase.
Evaluating Tax Returns
Before making a purchase, you should evaluate the business's tax returns for the past five years. When looking through the tax returns, keep in mind that many small business owners use their businesses to pay for personal expenses, such as taking vacations or buying products that they personally need. With the help of an accountant, you should be able to better determine the actual financial net worth of the company before you make a purchase.
Examining Liabilities
When you purchase a business, you may also become responsible for its liabilities. Therefore, you should acquire a complete list of the business's liabilities and have them reviewed by an accountant or an attorney before you make a purchase. Items that should be placed on this list, if applicable, include:
Be certain to consider the potential cost you will incur because of these liabilities as well as the possible legal ramifications before you make a purchase.
Exploring Accounts Receivable and Accounts Payable
You also need to take a look at the company's accounts receivable and accounts payable before you complete a business purchase. In both cases, you should break the accounts down into those that are 30 days old, those that are 60 days old and those that are 90 days old. For accounts payable that are more than 90 days old, find out whether or not any creditors have placed a lien on the company's assets. For accounts receivable, determine whether or not the clients are creditworthy and are likely to pay their accounts, as the problem may lie in the method the company is using to collect on its accounts. If the problem lies in the clientele, it may be a sign that you should look somewhere else for your business purchase or that you should negotiate a lower price for your purchase.
AARON MULLER| ADVANTAGE COMMERCIAL BROKERS
BUSINESS BROKER, COMMERCIAL PROPERTY SPECIALIST
DIRECT: 425.766.3940
FAX: 425.882.2547
CHECK OUT MY LISTINGS AT www.acbrokersinc.com
