Below are some things to consider when evaluating a business:
• Scalability & potential for Growth which is the company's future ability to generate large income, expand its workforce and increase production. Scalability is one of the most important factors for entrepreneurs considering starting a new business or hoping to take a current business to the next level. Successful business growth depends on a scalable business model that will increase profits over time, by growing revenue while avoiding cost increases.
• Financial performance: Is the business in sound financial condition? Have you seen audited year-end financial statements for the business? Have you reviewed the most recent statements? Have you reviewed the business's last five tax returns? Does the business have any debts or liens against it? If so, what are they for, and in what amounts? What are the projected profits and cash flow and how well have costs been controlled to date? When valuing a business, it will be important to take into account any capital expenditure that has been planned for or will be needed in the future. Future profitability is obviously of the utmost importance.
• Location: The location of a business can affect many aspects of how it operates, such as total sales and how costly it is to run.
• Market size and strategic positions: One of the most important factors when evaluating a business opportunity is market size and how big that market is. It's important to review the attractiveness of the broader sector or industry and how well the company is positioned strategically within it. It is paramount that the company has strong market share that is not easily disrupted by its existing competitors or new entrants.
• Reputation and relationships: The reputation of a business is essential to its survival. The trust and confidence of the consumer can have a direct and profound effect on a company's bottom line
• Team: When valuing a business, the current management structure is of critical importance for potential buyers, as this will determine whether or not new owners could leave the running of the business to the current management and not have to spend time being involved in the day to day management. Also, you need to look at the management. What skills do they have? Are they appropriate and diversified? Do you trust the competence of the principals to make the opportunity a success?
• Passion and Persistence: Are you working with people who will get the job done? Do you trust that they have the passion to make things happen? Will they approach problems with a can-do attitude in order to solve them?
• Factors outside the business: There are undoubtedly other factors that a good valuation company will take into account in order to get the most accurate valuation but this depends on the industry its operate in and the type of business.