When you want to take over a company, you need to carry out an analysis to ensure that the company in question is worth buying. The analysis of a company is not limited to that of its financial statements (even if this is a crucial step). Still, it must extend to the study of its environment: the geographical sector, the market and customer analysis, changes in legislation, etc. The following steps must be taken to carry out the analysis of a company:
This method of analyzing a business is, of course, familiar, and there are many, but it is organized into different critical stages of a business takeover.
The analysis of a company necessarily involves the study of its financial statements, regardless of its size or activity. Can you imagine taking over a business that is making significant losses? Who is in debt? Who has a very low turnover and cannot cover expenses?… To carry out the financial analysis of a company, two elements are essential:
The study of these statements should be carried out by looking at only some of the amounts that appear there, and it is necessary to identify the significant elements that make up these financial statements. Then, these essential elements must be analyzed in detail using other supporting evidence. We will not discuss the financial analysis of a company in detail because a complete book would be necessary.
The company’s balance sheet represents its assets, including everything the company has in its possession and all the debts it has in return (we also talk about jobs and resources). The financial analysis of a company involves studying the following elements:
The income statement is the summary of the company’s operations over a given financial year, which includes all sales made and expenses incurred. The financial analysis of a company involves studying the following elements:
During this stage of analyzing a company, we will seek to provide answers to the following questions:
The list of questions that one could ask is, of course, endless when analyzing a company’s resources. The essential difficulty lies in being able to target the critical points to be addressed when researching the company. The subjects for reflection are, in fact, different depending on the size of the company, its organization, and its sector of activity. Prior experience in the field of activity of the company analyzed is advantageous to carry out this step successfully; this will facilitate the identification of critical points to study.
As with the creation of a business, the takeover must also be subject to an analysis of the business market. The study of supply and demand in the sector of activity allows the buyer to:
Analyzing a company also involves analyzing its geographic location. Through this analysis, we must be able to provide answers to the following questions:
Certain types of activity, for example, require you to be in a dynamic city center rather than in the middle of the countryside, such as clothing stores or bars open at night.
When we analyze a company, we must take an interest in the legislation applicable to the sector of activity and ensure that the company complies with it:
These various points are essential for the buyer, and they make it possible to plan the possible measures to be taken to come back into compliance with the legislation and, if necessary, to quantify the cost.
The process of analyzing a business could be smoother. Still, you have to stick to it because the risk taken, especially financially, in the context of a business takeover is much heavier than a business creation. We advise you, in this critical stage of a business takeover, to be accompanied by an accountant. After having carried out these different stages of analyzing a company, you will be able to make an informed decision: is the takeover of this company an exciting opportunity, or is it not worth it?
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