It can be easier to jog up the stairs than to find the mental energy to study a business valuation thoroughly! We may often be to blame, insisting of stringent norms of brevity, which do more justice to egos than to capital resources!

However, planners let loose, can indeed fire volleys of pages which can match theses by weight! Who is not short of time, and left wondering how to be truly sure that everything relevant has been taken in to account during a business valuation exercise?

A standard set of questions can help. It does not matter if subordinates learn your style, because they will prepare full answers during the next business valuation opportunity! Working Capital is a good area to put under a business valuation microscope, because so many junior people in an organization may tinker with it, without outsiders who are new to an operation, realizing the truth behind numbers.

You can start the Working Capital section of your business valuation review, by searching for slow-moving items in reported inventory. Has anyone been to the warehouses, and removed damaged and expired goods from the books? Many companies resort to deals for the trade, to window-dress results at the end of a reporting period. Take a look at how inventory levels moved in-between reporting periods, and suspect any peaks and troughs that you see.

Working Capital analysis is a bit like archeology! You can uncover an entire corporate culture by a painstaking restoration of statements concerning inventory, receivables, and payables. An investment proposal which stand up to scrutiny in this area is probably sound in the other parts as well. Sellers, who would like to make favorable impressions on potential buyers, can use this Working Capital approach to good effect as well.

Filed under: Business Valuation

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