If you find a business that you are genuinely interested in and would like to own, you will need to consider a lot of things before deciding on the purchase. Analyze yourself and the business and try to match the things which are going to be paired well and then take a closer look at the business and answer the following questions to determine if it will be a sound investment for you and prove to be in your favor:
- Why is the business being sold by the owner?
- What is the potential of the business, will it rise or fall?
- What is the financial condition of the business?
- Is it making any profits apart from covering all the expenses of running the business?
- If the business is drowning, how do you plan to make it rise again?
- Does the business have any ongoing or previous lawsuits against them?
- What is the customer base of the business?
- Is the business independent or still under debts?
- How does the season affect the business?
- Who are the competitors of the business?
- Do you think the business needs an upgrade in terms of equipment or staff?
- Are the employees talented enough?
- What are the wages for the employees?
- How is the business management team?
After you have an answer to all the above questions, it’s time to evaluate the price of the business for sale. Consider all the above points to determine a fair asking price and see if matches the price tag on the business. As a business buyer, you have a right to make an offer and provide valid reasoning for the same. Pricing a business is actually an art, not science. Buyers who are able to identify the scope of the business and able to evaluate the business structure based on the important factors tend to succeed in purchasing the business on a good price.
Some business-owners offer a business for sale with a unnegotiable price tag but some of them are quite flexible as to what the buyer has to offer and they reach a mutual decision which turns out to be favorable for both the parties. If you go further deep into the valuation process, you will be amazed at the number of formulas present there to help you or to confuse you further. The best way is to set the criteria yourself. You are your best judge and you know best about what you can afford.
Furthermore, if you are not experienced as to how to deal with the pricing situation, you can always consult a professional who can help you out with the valuation process. An experienced person will be able to guide you further into the deal, by evaluating the past books of the business and make some predictions about the future revenue generation as well. Business valuation is a complex task, and a financial adviser with experience in business valuation can be an invaluable asset.