There are many different methods of valuing a business. Some investors use discounted cash flow, others use a multiple of earnings, some look at appraised assets. If you are in the same business as the business for sale that you are looking to acquire, what synergies exist between the two companies?
The amount of savings that can be generated needs to be factored into the purchase price. If you are looking to acquire a competitor who keeps low balling the prices, if you were to acquire them, that gets rid of a competitor which will result in higher prices, you need to factor that into the amount that you will offer for the business for sale.
Here is a list of items which you should have when doing your valuation
- three years financial statements prepared by an external accountant. If the accountant has a designation, ie. CA, CGA, CPA, the accountant may have issued an opinion, a Notice to Reader, Review Engagement or Audit. Please read the opinion to determine how much reliance on the financial statements, if any, that you should make.
- internal financial statements from the last year end up to current normalize income for the last three years. Normalized income starts with the net income reported for tax purposes and removes all personal and non reoccuring expenses which would not exist under the new owner.