Systematic Approach to a Business Appraisal

1. Assess What You Are Buying

• Goodwill
• Plant & Equipment
• Fixtures & Fittings
• Stock and Work in Progress
• Debtors
• Franchise Rights
• Training
• Licenses
• Liabilities
• Other Assets
• Business Structure

2. Financial Assessment

• Historical Accounts (3 years)
• Analysis of Significant Expenses
• Ratio Analysis
• Review Income Components
• Look Behind the Numbers
• What If Analysis

3. Payback Period

Is the investment worth it?

• Less than 2 years — Very Good
• Between 2 and 5 years — Average
• More than 5 years — Questionable

4. Projections and Sensitivity Analysis

• Break Even Analysis
• Benchmarking
• Aklkllkssess the Profitability Buffer
• Budget Projections
• Cash Flow Projections
• Assess Finance Requirements

5. Non Financial Indicators

• Industry Factors
• Business Characteristics
• Synergy between Purchaser and Business
• Review Product Range
• Nature & Relationship with Suppliers
• Review Existing Contracts
• Tenure of Leases and Asset Life
• Review Client Base for Spread & Dominance
• Personnel

6. Franchises

• Review the Disclosure Documents
• Is the Franchiser a member of the NZ Franchise Association
• Talk to other Franchisees
• Review Franchise costs
• Review terms
• Assess the System
• Assess the Support
• Ensure that the Client has taken Legal Advice

7. Other Considerations

• Finance
• Taxation Implications
• Structure
• Timing

8. Opinion