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Valuing a business before a purchase

by | May 6, 2015 | Sales & Dissolutions

Before you buy a business in Colorado, it’s important to get a valuation of that business so that you can determine what you should pay. Often, buyers and sellers will disagree on this valuation, as sellers will believe that the business is worth far more than a fair value and buyers will value it far under the market value, hoping to get a good deal.

One key part of a valuation is simply looking at the percentage of the business that you’re going to buy. If you’re buying it outright — the previous owner is turning it over to you 100 percent and will not be involved — then the valuation is for the full company. If you’re only buying partial control, even if you’ll own more than 50 percent, you have to get a valuation of your percentage.

For example, you may be looking to buy 25 percent of the business and the owner may tell you that it will cost $100,000 to do so. If this is fair, that means the real valuation for the company is $400,000. Even if you have $100,000 to spend, you need to make sure that you think the company is really worth $400,000 before you buy in. Otherwise, you could be paying more than you should for a smaller percentage of the company than you deserve.

If you and the business owner disagree on the valuation of the company or of its assets, you need to work these details out before signing any contract. To learn more about this process from a legal perspective, check out our helpful site today.

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