Before you buy a small business, you must determine its worth. This is a crucial step and must be approached with care.  While it is the seller's objective to get as much money for the business as possible, as the buyer you must independently determine what the business is worth to you.  It is important to recognize the differing perspectives of a buyer and seller, that can result in widely differing opinions about the value of the business.  A skilled intermediary such as Continental can be a critical tool for helping you and the business seller to reach an agreement satisfactory to both of you.

A much lower price than you expected could be a danger signal. A much higher price could mean that you will pay more for the business than it is worth. Placing a value on a business is necessarily a complex task, made even more difficult by the intangibles, subjective values involved, and the many different methods for approaching the task. Still, there are a few general guidelines that can be helpful.

Guidelines to Follow:
Don't attempt to place a cash value on intangibles such as goodwill and reputation. While these things are important, it is difficult if not impossible to place an accurate cash value on them.

Carefully evaluate tangible assets such as inventory, capital equipment, sales and balance sheets.

While accounts receivable are among tangible assets to be included in business valuation, they must be examined with care. Make sure that there are not many overdue accounts, which may be un-collectible. The health of accounts receivable is crucial information. Money you can't collect offers no value to the business.

Base inventory or capital asset valuation on current value not original purchase price. Inventory value could be grossly overstated if it is loaded with items no longer in demand or items whose prices have dropped.

Of course, there is far more to be considered when buying a business, but we hope that these general guidelines are helpful to you.