When considering buying a business, some of the main questions anyone will be struggling with are: “How much risk am I taking in buying this business? Is this business really as good as what the seller says it is? Will I be getting the cash flow I want from this investment?” 

The notion of risk is very subjective. It includes the fear of not being capable of facing situations one has never experienced before, the fear of discovering hidden defaults, the fear of unfavorable outside factors that will adversely impact the business. So when buying a business that is totally is new to me and if I had not so far had been taking too many risks in my life my fear factor is likely to go higher than if I have already bought and sold two similar businesses. 

In an asset sale, the allocation of the purchase price is the process of breaking down the price paid for a business and of assigning fair values to its major constituting assets and liabilities. Whiles this accounting decision is often left to the last minute, one should keep in mind that it should be implemented similarly on both buyer and seller sides and that it may have significant consequences on the tax liabilities resulting from the sale of the business. So it is strongly recommended to resolve this issue before finalizing the purchase agreement.

To improve your company’s value when selling, it is important to understand what influences the buyer’s thinking. Acquisition valuation is largely driven by the buyer’s comfort that the acquisition will generate sufficient cash to yield a reasonable return on investment. There are several factors influencing the buyer’s comfort zone ranging from employee issues to financial results to future opportunities. The key driver of value in most buyers’ eyes is the cash generated by your business. In most sellers’ eyes the cash generated by their business relates to revenue due to sales.

While this has been written with the buyer in mind, the seller gains the advantage of understanding how the buyer will begin the process of evaluating your business. Some of the best negotiators will tell you that getting inside the head of the person on the other side of the table is the key to a successful deal.
If you are the buyer, the pre-contract period is an essential part of the purchase process. You have already decided that you are interested in buying the business and need to turn your attention to some of the detail. The two main questions now are: Should I buy and how much should I pay?