The Impact of Business Appraisal on Old Companies

The Impact of Business Appraisal on Old Companies
The Impact of Business Appraisal on Old Companies
September 13, 2016

It is stated that every business has a life cycle which follows a fixed pattern. It is worrisome that new small businesses in recent times do not live beyond a decade. It is agreed that the economy of a nation is largely under the control of such small businesses therefore if they keep folding up after a short time, one can only imagine what would happen to the economy of the nation in the long run.

The life cycle of a business is calculated in four phases

There are four pointers that are used to determine the growth of businesses. The first is the introduction (talking about when it was brought into the market). This is followed by growth (the expansion of the business over time). Next is maturation (when the business has reached its peak of production and expansion). What trails every business in the end is decline.

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Some businesses have defied the decline stage

Once in a while, a business tends to surprise us by springing up from the old ones to start the four phases all over again. These kinds of businesses often outlive one generation. However, most businesses on getting to the fourth phase will chose the easy way out which is liquidation or divestment.

There is a limitation on the sale of dying old companies

When you are trying to sell off a dying old company, the main challenge you will have is that prospective buyers will appraise it lowly because they think it is not worth much. The result of low appraisal is underpricing which can be viewed as taking advantage of the seller. The second challenge is that buyers would focus more on the risk and insist that the business be sold at a discounted price.

Old businesses develop value over time

It is unethical for any business owner to sell a business, no matter how old, below the initial value. It should be noted that small business funding irrespective of age grows in value over time and these values would need to be converted into money in the interest of the business owner.

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Business appraisal is required for old companies

To eliminate all the setbacks in selling an old company, a business appraisal would be required and it is paramount that this appraisal should be carried out by a third party so that the prospective buyer would not have any problem as regards its authenticity.

Third party agents would demand the documents of the business

There are several third party agents out there that are involved in the appraisal of old businesses. To do this efficiently, they would demand for all the necessary documents of the business and provide the business with a certified report.

There are a number of problems with third party agents

Hiring a third party agent is not also an easy task. Their work will take a neck breaking time to reach completion and these agents are often very expensive to hire. A business owner looking to sell off an old business may not find these factors favorable.

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The solution to appraisal of old businesses

Technology has succeeded in solving more than one problem in business and business appraisal of old companies is one of the problems technology has been able to solve. There are softwares that have been developed to brilliantly conduct business appraisal online. They use well programed algorithm to provide timely and accurate appraisal of the old business. The good news is that there are many of such software out there.

Care should be taken in selecting software

Not all the software out there on business appraisal are good and care need to be taken to select the right one. Some software may fail in presenting the result in readable formats.

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Article highlights

  • Old businesses are undervalued by buyers.
  • It is not right to sell a business below its worth.
  • Buyers would focus on the risk of buying such businesses.
  • Every business has a life cycle.
  • Some business defy the four step life cycle of a business.
  • Third party agent appraisal is less likely to be rejected by buyers.
  • Third party appraisal takes a lot of time.
  • Economy of a nation is controlled by business.
  • Software makes appraisal faster and cheaper.
  • Care should be taken in selection of software.

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