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How to evaluate a business?

The question of competent assessment of business today is more relevant than ever. Indeed, in a recessionary economy, business efficiency is equal to its market value. And business owners are “fighting” over key indicators. In addition, these indicators are extremely important if you plan to acquire a new or sell an existing business.

You must have come across a certain “business slang” that is often “Americanized.” It comes to the fact that in Ukrainian and Russian languages ​​use the terms: costs (costs), fixed assets (fixed assets), etc. Similarly, there are a huge number of tools and indicators for business valuation: P / E-ratio, enterprise value (enterprise value, or EV), net cash flow (free cash flow, or FCF), etc.

This list is quite large and can confuse a novice businessman without special education. Fortunately, there are simple and logical business valuation rules that can be used in a dynamic business environment. Think about them when you think about your next cash investment.

Way of doing business
First of all, you need to understand and understand how the business attracts (in the case of startups, it is going to attract) new customers. What media are used at the same time, what advertising campaigns, what texts will help in this business and what the total cost of one client will result in. These things should be well thought out and realistic.

The next thing you need to know about business is how you plan to retain attracted customers, with what additional products, services and prices.

You need to consider the estimated cost of each client, depending on the media and advertising strategy in the first and subsequent years. It is also necessary to understand the product, why there is (or will be) demand for it, and what competitive advantages a company has with its product.

Industry Perspectives
This rule is as important as the first, and maybe even more important. Understanding the industry is often quite difficult. Each industry has its own dynamics. Retail, manufacturing and wholesale sales have different business processes and differ from each other. Within each industry, there are sectors that also function differently.

Clothing stores and bars are two examples of retail businesses that require a different approach. For example, stocks are a complex and critical business element for clothing stores. At the same time, it is not such an important factor for the normal functioning of a successful bar.

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