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How to Value a Business

Starting a business from scratch isn’t the only way to build an empire and establish a long-term financial investment. Buying an existing business comes with many advantages and is often considered a less risky investment if you’ve done your research.

Whether you’re looking at management rights for sale, a franchise or a small owner-operator store, conducting an analysis of the business will help ensure you’re buying a viable investment. As you search through for sale listings, keep these top 3 signs that a business is worth buying in mind.

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1. The numbers add up

It might sound obvious that a good sign of a worthy business is that the numbers add up, but a surprising number of entrepreneurs fail to do a thorough analysis of the books before buying into the dream.

This is where a good business broker can come in handy as many businesses are either overpriced or don’t provide full financial disclosure upfront. Unless you know what it is you’re looking for, you could miss something substantial such as a few outstanding debts or legal fees that you’ll end up inheriting.

Whether you’re looking at management rights for sale, a franchise or a small owner-operator store, conducting an analysis of the business will help ensure you’re buying a viable investment.

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Looking at the business balance sheets, cash flow and income statements, footnotes and tax returns for at least the last 3 years will help give you a good indication of the health of the business.

If the numbers add up that’s a positive sign the business could be a viable investment.

2. A good reputation

Small businesses rely on a good, loyal customer base so a positive reputation is one of the key signs a business is worth buying. Today, it’s easier than ever before to research what the customers have to say. Jump on the business’s social media platforms and read the comments. Do a Google search to see if there are any forums where people are talking about the product or service. Have a friendly chat with the locals on the street. Check the business bureau, ombudsman or industry associations to make sure there haven’t been any complaints about the business.

During your research, you’ll discover how active the business is in the community and online. This may be a red flag or it may a way for you to expand and grow the business when you take it over.

Photo by Michael D Beckwith on Unsplash

3. Loyal, well-trained staff

Another good sign a business is worth buying is if there are well-trained and loyal staff members who are keen to remain employed after an acquisition of the business. It shows the current owner has taken the time and energy to ensure the business runs smoothly and has created a positive working environment.

“Are you tired of the 9 to 5 grind? Maybe your industry or the company you work for are headed for failure. Or maybe you are just tired of working for other people and want to manage your own destiny. Whatever your reasons for thinking about making a drastic change in your career, there are tons of career alternatives that you can consider. You may even be starting your own business.” – 5 Ideas for Starting Your Own Business

These employees will become one of your most valuable assets as it gives you time to work on the business rather than in it. An existing crew of trained employees also alleviates the stress of interviewing, hiring and training new staff. They can also help educate you on the systems, the customer base, and the products. They’re likely to give you valuable and honest insight into what is currently working and what’s not which will help you as you grow and put your own stamp on the business.

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