One of the easiest and simplest parts of analyzing a business -- that is always made difficult, even by the Harvard Business School wizards -- is valuing the equipment of a business you are wanting to buy.

However, if you do it my way (not generally taught in the business schools) this is extremely simple, won't cost you a penny and will actually make running your business easier in the long run.

But before I reveal my secret, just know (in case this is all new to you) that if you ask four different people in the industry how this is done, you're going to get four different answers. And none of them will be correct.

And so what I want to get across to you here is the best way to determine the value of the equipment in a business you are wanting to buy is simply go to the people that supply you with the equipment.

Why?

Two reasons:

1.) They have things just like a Kelly Blue Book that they use in the auto business that lists what the different pieces of used equipment are, and youre going to find they can come back with a verbal or a written appraisal as to what the equipments worth.

This is extremely important.

In fact, in the last few years because of inflation running higher than normal, we found a lot of the equipment being purchased is actually worth as much or more than what they paid for it.

And as a buyer, youre going to pick up a lot of value in this area. Sometimes you will find owners selling their equipment for $100,000 but it's really worth $300,000.

2.) In most cases, it doesnt cost anything.

Why?

Because they are going to want to sell you more equipment in the future.

It's like with business plans. You can sometimes find "free" business plan services or programs online because the people giving them away want to sell you financing. It gets you in the door. And it's the same with equipment.

Bottom line: When it comes to evaluating the worth of equipment in a business you want to buy, skip all the fancy mathematics and expensive services, and just go right to the equipment sellers.

More often than not they won't charge you a penny and their information will be a lot more accurate than anyone else.