Too much of the merchandise or materials on hand may be old or poorly selected. In deciding how much to pay for a going business, consider its profit potential. Tangible assets such as equipment and inventory may be important to you, but only to the extent that they contribute to future profits. Also, determine and assess precisely the cost of any liabilities you will be expected to assume. Profit Potential You must be concerned with the future profitability of the business.
Most businesses have a natural cycle.
Retail stores usually have a cycle of one year. That is, each year follows the same pattern and several years indicate a trend. Certain types of heavy manufacturing companies may have up to a 7-year cycle. Thus, in some businesses you will be estimating three to five years while in another you may be estimating future sales and profits over a 25-year period. Obviously your estimate for the next two years will be more precise than your estimate for 25 years in the future.