A business analysis is important for the sustainability of every venture to remain competitive, and stand out.
Experts say business operations need to always adjust to the changing market environment. In order to identify the needs the business has yet to address and block all loopholes, business analysis has to be conducted.
Basically, studying the business environment, according to experts, will help to devise strategies to improve the performance of the organisation or help in developing new policies.
Businesses, which lack a system for evaluating growth opportunities and risks, may not last and such companies, as observed by professionals, do not prepare for opportunities but only take them as they come.
As part of the analysis, a business analyst, Chris Marr, says the environment should be divided into the macro, micro and internal environment.
According to him, the macro environment includes external factors, which have direct control on the business such as economic, demographic, legal and political factors, social conditions, technology and natural forces.
He says the micro environment is made up of factors that influence the business directly such as buyers, suppliers, competition and stakeholders; while the internal environment includes an analysis of internal decision making and change, which is mostly controlled by the organisation.
He says a good understanding of the potential conditions in the extended market can assist the manager in making better strategic decisions.
According to him, it is important to be able to recognise the simple signals in the environment through a comprehensive and continuous analysis.
To buy an existing business or form a partnership with other business directors in a company, experts have pointed out the following ways of analysing the venture to avoid pitfalls.
Conduct due diligence
Experts say the practice of carrying out a thorough check on the business in order to identify whether it is likely to succeed in the future is called due diligence.
Information and documents that need to be analysed before buying a venture include the profit and loss statement for the last two years in which the vendor has managed the business; a balance sheet to identify assets and liabilities as well as a list of plants, equipment, fixtures and fittings.
A business consultant, Mr. Chidi Nwachukwu, said that the value, functionality of the equipment, and their warranty have to be determined.
He suggests that the details of any inventory sold with the business and how it will be counted and valued at settlement should be ironed out.
In addition, he says if the business premises are leased, a copy of the lease agreement should be checked; and if it is a franchise, the buyer should request for a copy of the franchisor’s disclosure statement.
Determine the cash flow
In as much as the purpose of buying a business is to make profits from the deal, the ability of the business to generate substantial amount of revenue is important. As result, the business annual cash flow should be investigated, Nwachukwu says.
According to Investopedia, cash flows are essential to solvency because they provide record of past events such as the sale of a particular product, or sales forecast, showing how much revenue the business is expected to generate.
It notes that cash flow is crucial to an entity’s survival, adding that having substantial amount of liquidity will guarantee that creditors, employees and others can be paid on time.
If a business or person does not have enough cash to support its operations, it is said to be insolvent, and a likely candidate for bankruptcy should the insolvency continue, Investopedia explains.
Evaluate the risk
As observed by professionals, changes in financial markets, legal liabilities, natural or man-made disasters and threats could cause disruptions to business operations.
To identify the presence of these risks, Nwachukwu suggests that the certified financial statements, which are correct and properly represent the trading figures of the business being sold, should be analysed.
He explains that figures provided under a disclaimer are an indication that the vendor or the person preparing them is either unwilling or unable to vouch for their accuracy.