Definition of Business Evaluation

A business evaluation is an analysis and review of the entire business as a whole. It is conducted to determine the overall standing and operation of a business before it is sold by the owner to a potential interested buyer. The evaluation is conducted to ensure that the buyer understands what areas may need attention and what changes need to be implemented to get the business desired from the purchase.

Business Evaluations for Sales

If the business is being evaluated with the goal of selling it to potential buyers, the evaluation commonly consists of analyzing the owner’s choices and judgments in operating the business. This includes the products and services offered by the business, the marketing strategies used by the business, the activities the business does in the community or on a local plan, along with any standards that are set by the business. The decisions and judgments made by the owner also will reflect in the assets and liabilities that exist under the business’ name and the operational budget.

Internal Business Evaluations

The business evaluation may also cover the internal workings in the business. This is important if a potential buyer also wants to buy the employees in the business, which means that the workers get to keep their jobs despite the company’s change in ownership. The potential buyer may want to know how the business is operating internally, how the management is using effective leadership and if the employees are practicing accountability, effectiveness and efficiency.

Using a Business Evaluation

Once the business evaluations have been conducted, the current business owner and the potential buyer each get a copy of the evaluation to read through. This can include an evaluation of both the business as a whole and an internal evaluation of the employees and current management in place. The business evaluation is used for two purposes. The first is that the potential buyer gets an overview of how the business operates and a description of the business’ worth. This information is used to determine whether the buyer wants to purchase the business. The second purpose is to inform the current business owner of any changes that need to be made in the business to make it more appealing to potential buyers.

Business Evaluation Checklist

The business evaluation checklist that highlights what aspects of the business are being evaluated must explain the reason why the business is being evaluated. If it is due to the business being sold, the reason for selling must also be included, as the information could prove valuable for the buyer. The evaluation checklist also should include a list of the business’ given assets and liabilities, along with a description of the overall direction of the business on the given market and customer opportunities. The potential buyer would want to know the growth potential of the business and the company’s standing to the direct competitors on the market.