Business Valuation Guide

Researching your business acquisition target

Once you locate a promising business, it is time to investigate it thoroughly and construct a solid offer. Your research must be both quick and comprehensive, covering a number of key areas, including:

  • Business financial track record.
  • Business and industry growth prospects.
  • Position of the business in its market and competitive threats.
  • Customer and vendor bases.
  • Leases and other contractual obligations.
  • Employees and availability of skilled labor.
  • Access to acquisition financing.

Some of this information will come from the seller. Most of it you will gather from independent sources, such as those listed in the ValuAdder Resources section. Your research will provide crucial facts on which to base your buying decision:

  • Projected business income stream after the purchase.
  • Types and levels of risk you take in buying the business.
  • What the business is worth as an income-producing engine.
  • What the business is worth as an investment.
  • The elements of a solid business purchase offer.

You can use your findings directly in ValuAdder to accurately determine the business value and construct a viable business purchase proposal. Select the 14 valuation multiplier criteria in the Multiple of Discretionary Earnings business valuation to see what the business is worth based on its strengths and weaknesses.

Use the Discounted Cash Flow method to determine the business value from your business income stream projections and the discount rate accounting for all the risks uncovered in your research.

Explore any number of viable business purchase scenarios with the Deal Check calculation as you prepare to make an offer. Factor in your purchase price, working capital, and transaction costs into the project cost of acquisition.

Then fine-tune the key elements of the deal – your down payment, seller and bank financing terms, your compensation, and capital investment levels you will need to run the business.

For each purchase scenario you construct, ValuAdder computes the business cash flow required to make the deal work. And the Deal Check automatically accounts for the standard debt service coverage ratio of 1.25 on all borrowed acquisition capital.