If you’re an entrepreneur and are interested in acquiring a business that has been running for a while, you’ll want to assess what the business is worth before you make an offer.
You’ll go through the process of determining the dollar amount of the particular business by conducting a business valuation report.
What Is A Business Valuation Report?
A business valuation report is an analytical project that outlines the results that have come from an appraisal involving the company you want to purchase. The report will allow you to determine if the business has a long-term success strategy and a solid foundation. If this is the case for the business, then it will show positive numbers and will be valued higher than a business that has been slipping in its revenue earnings for several quarters.
Depending on the kind of business you’re looking to acquire, you may want to buy a business that has lower numbers on a business valuation report because you’ll be able to purchase the business at a lower price point. Once you become the owner of the business, if you put the right strategies into place then you might be able to turn the business around and reap the rewards of adjusting the company’s strategy.
You may even wish to turn the business around so that the next business valuation report that is performed for the business will show positive numbers and you’ll be able to sell it for a profit.
Who Conducts The Business Valuation Report And What Does It Contain?
Typically you’ll hire an accounting firm, broker, or investment banker to compose a business valuation report. It’s also possible that the company that is looking to be bought will have already had one of these three possible parties create a business valuation report for them.
Within the report itself, you’ll find that there are main pieces that each one of the reports will contain. The main elements include the purpose of the report, its scope, the methods used to determine the cost of the business, the credentials of the person or firm who filed the report, and the date that the valuation was completed. Each one of these elements is included in the report so that credibility will be established and there will be a consistency across reports so potential buyers can easily compare companies.
In addition to the main pieces that are included in each report, your report will also contain:
- The business’ main functions and purposes
- Industry or regional economic conditions that can affect the financial stability of the business
- How the business functions with its organizational structures
- The methods used for the valuation to be completed, the results, and the opinion of the party who completed the report about the business’ true value.
These reports are imperative if you’re interested in buying a business to know what it’s true value is. A business valuation report can cost anywhere between $2,000-$30,000 depending on the complexity of the business and the amount of time it will take for the report to be completed.