What a business is actually making and how that effects its value

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This is one of those tough question, one in which there is no correct answer. The facts are that a lot of small business owners do poor book keeping. We can not say whether it is because they do not see the value in it, do not have the time, lack the proper education, or are intentionally attempting to hide something. It can be a little disheartening for potential buyers to hear at first, but if you seriously think about it a little bit further you will realize it is nothing that you need to worry too much about. Even if the numbers were accurate down to the very last cent, if everything on paper just looked amazing, but then the wrong person purchases the business and then “POOF” everything positive can evaporate nearly overnight. On the other hand, we have seen horribly run businesses get bought out by experienced operators and within a few months time the operations are completely turned around and running profitably once again. Do not take this the wrong way, we are absolutely not advocating overlooking any of the financials when available. What we are instead recommending is that everything should be calculated into the overall business valuation. The business is for sale on the market for a specific reason, more often then not that reason being that the current owner is just not cut out to run it. When buying a distressed business you need to calculate in the amount of work and increased risk you will be taking in attempting to turn around the operations. After doing that, if you can still not put a number on what the business is worth then it is not worth your time and you should simply move on. There are many buyers that insist upon seeing all of the financials before even looking at the business in person. Again, to each their own as everyone likes to work in their own particular fashion. However, in our experience this tends to occur with buyers that are not quite ready yet to buy a business in the first place. It is a lot more comfortable to sift through a bunch of numbers at home to find any little error that will preclude this opportunity from the list of potential business to buy rather then to actually step out and familiarize yourself with the business first hand. Also try to keep in mind that the current business owners are typically struggling to stay afloat, and although they would be more then happy to collect any pertinent information to make a sale happen they do not have time to waste if the potential buyer is not serious. The best way we can explain it using an analogy would be a client asking for all relevant comps, financial stats, mortgage rates, taxes, insurance and construction quotes for a house they may be interested in without ever looking at it. Always remember that the most important factor contributing to a business success is going to be you, the new owner.  If you do not like the actual business for any reason at all, it does not matter one bit how attractive the numbers may be. Try to put the cart in front of the horse and go take a look at the business before diving to deeply into the financials or valuation.

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