It’s Business, And It’s Personal

Determining the value of a small business

On Behalf of | Mar 15, 2018 | Buying & Selling Businesses |

Before purchasing a small business, North Carolina entrepreneurs should make sure that they receive the best value possible. While there can be many exciting personal factors that make a particular business a compelling investment, it is also important to thoroughly review the necessary financial documentations in order to protect one’s interests. A business valuation is based on current financial activities, previous activity, potential for growth and existing levels of revenue.

The value of a small business can be increased by several factors, including proper statements that report the financial status and market trends that indicate strong potential. A purchaser should look for clear appraisals from senior management and an accounting firm when determining whether a business would be a positive acquisition. In addition, an investor should consider whether they wish the current owner or management team to continue in their positions for an indefinite time or a temporary transitional period.

Reviewing financial statements over the previous four years of the business’ operation can help to provide a deeper understanding of its operation and financial health. These statements will hold greater value and credibility if they have been audited by an independent accountant. However, many small businesses do not take up this additional step. Reviewing tax returns and the existing business assets can also provide valuable information about a the financial status.

People considering buying or selling a business will encounter an array of documents, reviews and materials that can help them determine the value of the enterprise. A commercial law attorney can provide important advice, guidance and representation throughout a business transaction in order to protect one’s interests and validate the documents presented.