Business Analysis, Profitability Analysis, Audits and Evaluations

Everyone knows that when you buy a business you have a full business analysis or an audit of the books done, in order to see what the seller did not disclose,  not to find out if he did not disclose something. What is less understood is that a business analysis is even more important then people understand  and should be done before spending bundles of money on a full audit. An analysis of the business tells you the viability of the business.

    • Does the industry show signs of being able to grow in the fututure?
    • Is this company becoming antiquated because they make parts that China or India is now producing for a quarter of the price?
    • Has the management team kept the business growing?

An evaluation of a business’s worth should not be just based on the financials, which is what almost all appraisers use. It must be based on how viable the business is.

    • Will it survive in this economic condition?
    • Does it have some uniqueness to it that will assist it to compete successfully in a highly competitive market?

Financials are a representation of the past and only give a possible indication of the future. You need much more information then this.A profitability analysis is an important tool that should be used when buying a business. It tells you the probability of a company surviving and flourishing in this economy. The fact that a business is here today is not an indication that it will be here tomorrow. Business buyers must always remember that there is a reason a seller wants out, and it definitely not the reason he is disclosing.

So you want someone to audit the books of a company you are interested in buying? That is great and it is definitely important. Before doing that you should think about doing a business analysis. This is the first step to then doing a profitability analysis. Why buy a profitable business if its life expectancy is two years due to outside influences?

For more information about audits and evaluations, call us on 800-864-0420 or email us at