You want to acquire a running business and you want a loan for it. You have a fair idea about what you plan to buy and just need the required funds to seal the deal. But have you ensured that the price being quoted by the seller is fair price or it still has some bargaining potential? Here comes the business valuation. This article is an attempt to get you acquainted of the basics and the process of valuation, before you actually go for commercial business loans.
There can be a lot at stake when you purchase a business. You will apply for a business loan and the cost of this loan and the amount of money you will need is based on the value of the business. In addition if you pay too much for the business, your new business’s profitability will be forever impacted by this overpayment.
Of course no wants to pay too much for a business either and there is a personal competitive issue that we all want to be able to claim that we received a really good deal when we bought a business, regardless of how large or small it is. Getting an accurate business valuation can have huge impacts on your success to obtain a business loan and your long term success in your business.
You may need multiple skill sets to help you evaluate the business you are considering purchasing. The banks will request this valuation as part of the successful business loan application. You may need a lawyer to provide an opinion on the legal aspects of the deal. You may need an accountant to audit the books of the business and the deal itself. Sales and marketing are specific skills that will assess the sales forecasts, the quality of the customer base and the long term market potential of the business.
Operations and fulfillment are very specific skills that may be assessed by people familiar with the type of business that you are considering. Are these groups performing in an efficient manner, are the customers satisfied, is there a large backlog to the order desk? There are many questions that need to be reviewed and assessed as part of the valuation of this business.
In addition a key question is whether there is a viable product that is being sold by this business. What are the warranty situation like and the profitability of each product item? Are support costs within range etc.
We have only covered a few of the areas that need to be assessed in the previous paragraphs. The important step is to ensure that you are as fully knowledgeable about the business as possible so that there are no surprises when you take over and that you can address all concerns by someone who is evaluating the business application.
The really difficult part of the task when you ask for an accurate business valuation, is actually assigning a realistic value to the business. You have evaluated all of the issues and understand the business in detail, the areas that need to be fixed and changed, but how do you attach a value to the business?
Experts in this area are need to assist in attaching an accurate valuation and then preparing a business loan application that can withstand your own scrutiny as well as that of the lenders who may advance the loan that you are applying for. Most business owners want to be satisfied themselves that they can make money after they purchase this business and that the cash flow will allow them to operate the business and turn it into a profitable business.
Turn to the experts for help in making sure that you have an accurate business valuation to ensure a successful business loan application.