Buying and Selling a Business
There are several things to consider when buying or selling a business, in particular, due diligence and business valuation.
Provides sufficient information to:
There are two types of due diligence:
This provides the purchaser with a broad understanding of all aspects of the company’s business and operations including:
This supplements the preliminary due diligence process and examines the following:
Now that the due diligence procedures have been performed the value of the company needs to be determined. There are three types of valuation engagements that can be performed by a valuator:
After this has been decided the valuator need to determine the approach to use. Depending on the type of business there are several valuation approaches that can be used to determine the value. For example, if the business has active operations you could use an income or cash flow based approach. Types of approaches would be:
Now what if the value of the business is not in its ability to generate cash flows but instead is in the underlying assets? Then an adjusted net asset approach would be appropriate. It is commonly used in valuing holding companies with real estate holdings or marketable securities.
Navigating the sale of a business you have spent your time and energy building can be a complicated process and requires the assistance of qualified professional lawyers and accountants. If you are looking at buying or selling your business and are unsure of what the value of the business is please contact your CPA or:
Chris Newton CPA, CA 250-492-8444
A partner at Omland Heal, Chris works on the audits of non-profit organizations and owner-managed businesses. In addition, Chris prepares business valuations for estate and tax planning.