Choosing a Good Business – It’s Not Just the Numbers

MMJ Blogger | 18 months ago
Choosing a Good Business – It’s Not Just the Numbers

When investigating a business to buy, purchasers often only ask about the figures. Their questions are all about what does it make?

The reality is that the value of a business is not simply found in the financial statements. In fact there is information that can’t be found in any financials that are more important in determining the value of a business and what opportunity it provides to a buyer.

In truly assessing the proposition of a business purchase it is imperative you understand the numbers but also how they can be impacted by the following:

People

Often business owners neglect the importance of developing a strong team and the value this team offers to a new business owner. A good strong and reliable team allow a new owner to work on the business and not in it, so that they may implement new growth initiatives.

The Industry

What is happening in the industry? Is it in a growth or decline phase? Are their areas of the industry experiencing growth and what changes need to be made to capitalise on these changes?

Plant, Equipment, Assets and Work in Progress 

The value of the assets are crucial for any business. These assets, equipment and the amount of work in progress have a large impact on risk minimisation, cash-flow and future profitability.

Intangible Item

The customer databases, systems, operations manuals, processes and other intellectual property can be a very valuable element of any business.  

Contractual Agreement

The contracts such leases, franchise and licensing agreements, customer agreements, staffing contracts and other arrangements are often pivotal in defining the value of a business. Buyers often desire good strong, reliable contracts that allow them to buy with certainty, the simplest example of this is a good well negotiated and long standing lease. 

The Terms of The Sale

There are often terms of a sale that provide an important value trigger for a buyer. For example, will the vendor consider vendor financing part of the sale. Other important elements include the training or transition period of assistance provided by the business seller. This transition can be vital for a new buyer to establish and maintain existing relationships and ensure a smooth transition.