The first part of a valuation engagement is to understand the business. How the business operates. This is the story behind the numbers.
- What are the key drivers of earnings?
- What are the key risk factors?
An operational analysis includes understanding the products and or services, customers and suppliers and the competitive advantage.
The analysis often falls into three key categories: business operations. agreements and licensing and corporate information.
Operational information required for the valuation depends on the nature of the business and industry, but typical questions include:
- How long has the business been in operation?
- Who are the key management and staff together and what are their roles and experience?
- What are the plans for the expansion of the business, either geographically and or new service lines?What are the potential for growth?
- Who are the key customers and how long have they been with the business?
- Who are the key competitors and what are the barriers to entry?
- What key operating assets does the business own?
- Is the business involved in any related party transactions?
- Are any shareholders involved in the business?
Agreements and licensing:
- Does the business have any licenses, agreements, or contracts in place with customers or suppliers?
- Does the business own any trademarks, patents, or other intellectual property?
- Is there a shareholders’ agreement in place?
- What entity structure holds the business, for example, a company or a trust?
- Who are the shareholders or trustees?
- Has the entity made any business acquisitions or been approached by a buyer?