If you are looking into buying a business for the first time or are looking to make an offer on one then there are several things that you need to do and be aware of before you close the deal. If you’ve already made an offer on a business without even using company valuation tools necessary, then you’ll probably need to back pedal a little bit and make sure that all the following things are in order.
Buy the Assets, not the Business
What does this mean? Basically, don’t just buy stock in a business. If a seller is an LLC or a corporation, that is something that they will probably offer. Don’t fall for it. Instead, buy the assets of the business so that you can make your own company. The main reason for this is so if the seller owes anyone money or is being sued for something, you
For many business owners, their only exit strategy is a sale of the company, either because they have no heirs or they don’t have employees who can take over the business. A business owner getting out of the business is going to want to get as much as possible for the business, which is why it is important to employ business evaluation services to come up with a business valuation that is at the high end of what the market will pay.
There are more than 26 million businesses in the U.S., and the vast majority of those are small businesses. About 21 million of those businesses have no employees at all, and 99.7 percent have fewer than 500 employees. With very tiny businesses, it can be hard to set a value, because much of the intangible part of the business can be tied up with the owner.
How many businesses have you started? How many businesses have you sold? If you are an investor who has bought, started, and sold many businesses, you likely understand the process of determining the value of any company.
Approximately 543,000 new businesses are opened every month. In contrast, just as many employer businesses shut down than start up each month. As all of these business opening and closing transactions take place, someone has to determine the value of these companies. Business valuations are determined by one of three approaches:
- valuation market approach
- income valuation approach
- cost evaluation approach
Valuation Market Approach Is Not Always an Absolute Number
Many factors go into determining the value of a company, b