Before you make any purchase, you want to know what you're paying for, right? The same is especially true when you are acquiring a business. Before purchasing your business, you need to determine the value of the business and determine if there is a profitable future given its current condition.
A realistic business valuation requires more than merely looking at the previous year's financial statement; it requires a thorough analysis of several years of the business operation and an opinion about the future outlook of the industry, the economy, and how the subject company will compete.
How Should I Do My Analysis?
Most people believe that a business should be sold for Fair Market Value. The term Fair Market Value is defined by the IRS at Rev. Ruling 59-60 as follows: "The price at which the property would change hands between a willing buyer and willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts."
There are a number of different methods to determine a fair and equitable price for the sale of the business. The following lists a few methods to determine the price: