Friday, September 11, 2015

How to Evaluate a Business before Making a Purchase

You need to gather enough information in order to make smart investment choices.

Here are six things you ought to consider when you are evaluating a business:

1.                   The financial statement 

It is very important to check the financial statement of the company. Check the asset reports, profit and loss reports, and any other income statements for the last 3-4 years. 

2.                   The tax record

Check the income tax returns for the past 3-4 years; this will give you an insight of the business’ profitability. 

3.                   Evaluate the assets

Check the plant and the installations to know if they are in good working conditions. Also, conduct a stock valuation to determine the measure of stock available and its present worth. 

4.                   Know the Clients and Suppliers 

Get the database of key clients and suppliers that are vital to the business.

5.                   Find out why the proprietor is selling

It is good to know why the owner of the business is offering to sell, and the number of offers that has been made.

6.                   Check the legal rights and obligations 

Get information about government regulations that apply to the business and whether the business has the necessary license it needs to operate. 

Finally, do not make a purchase until after you have diligently conducted the business evaluation, and you are convinced that the business will have a good return on investments. 

Stephen Souky holds a Bachelor of Science degree in Accounting from the State University of New York at Fredonia. He has built a successful career on the foundation of strong accounting, team leadership, and communication skills.