Should You Spend The Time And Money To Evaluate A Business Before Buying One?

HOW TO EVALUATE THE TRUE WORTH OF A BUSINESS
PART 9 of 21

"Should You Spend the Time and Money to Evaluate a Business Before Buying One?"
by Willard Michlin

Everyone knows that when you buy a business you need to audit or confirm the financials to see where the seller is fibbing or not fibbing. An appraisal of a business's worth should not be just based only on the financials, which is usually what is used. What is less understood is that a business analysis, could very well be more important then an audit and should also be done before or during the audit.

An analysis tells you such interesting things as how viable is the business? Or, what is the expected profitability in a few years for the targeted company? An analysis tells you the probability of a company surviving and flourishing in this economy. The fact that a business is here today is not an indication that it will be here tomorrow. Buyers must always remember there is a reason a seller wants to sell, and it is definitely not the reason he or she is disclosing. I assure you the business owner did an analysis of the profitability and viability of the business before putting it on the market.

The viability issues of a business might include. Will it survive in this economic condition? Does it have some uniqueness to it that will allow it to compete successfully in a highly competitive market? Is the industry shrinking? Has the company become antiquated because China or India is now producing their product for a quarter of the price? Is the management team inept or worse, stupid?

Financials are only a representation of the past and only give a possible indication of the future. Look at how fast the economic conditions have changed in the USA in just the last year?

Yes, you do want someone to audit the financials of any company you are interested in buying? That is great and it is definitely important to do, but also think about doing a profitability and viability. Why buy a profitable business if it's life expectancy is only two more years because of some outside influences you had not thought of?

Willard Michlin is a Due Diligence and Business Evaluation Advisor. He is also a California Business Broker and a California Real Estate Broker. He has published many articles and is in demand as a public speaker in the Southern California business community.See other articles and information about his services at:
http://www.businessbuyingservices.com
http://www.kismetbusinessbrokers.com

Willard Michlin is a Due Diligence and Business Evaluation Advisor. He is also a California Business Broker and a California Real Estate Broker. He has published many articles and is in demand as a public speaker in the Southern California business community.See other articles and information about his services at:
http://www.businessbuyingservices.com
http://www.kismetbusinessbrokers.com

Article Source: ArticlesBase.com