Looking
at the past performance of a business can give you a great deal
of information about its potential value. If the owner refuses to show
you the past records, don't buy the business. There are many business
for sale, and most owners are willing to cooperate with serious buyers.
When reviewing the financial history of a business, go back five years
if possible. There are two main financial statements that you or your
accountant should review. Those are:
 BALANCE SHEET
INCOME STATEMENT
The BALANCE SHEET shows the value of the
assets and liabilities of a business on a specific date. It shows what
the business is worth on that date if the owner sold all the business's
assets and paid all its bills.
The INCOME STATEMENT indicates the amount of
profit (or loss) acquired over a period of time. Most businesses
prepare an income statement every three months to see if the business
is in good financial health. The income statement lists the income of
the business along with its expenses. The difference between income and
expenses equals the profit or loss of the business.
From the balance
sheet and income statement, the owner or potential buyer of a business
can find out the following:
Whether the expenses of the business
are in line with its sales.
How much profit the business is
earning.
Whether the business owes too much
money.
Whether the customers are paying
their bills on time.
Whether the inventory (merchandise
available for sale) is selling as quickly as it should be.
IF INTERPRETING
FINANCIAL STATEMENTS IS NOT YOUR AREA OF EXPERTISE, YOU SHOULD CONSULT
A PROFESSIONAL ACCOUNTANT BEFORE MAKING ANY PURCHASE DECISIONS.
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A Basic Guide for Buying and Selling a
Company - This outstanding guide contains all the essentials
with regard to the interaction of people transacting for small
businesses and how to maximize your chances to obtain fair deals.
Explains how to effectively use a business broker, methods of payment
available to the buyer, deal with an attorney, how the seller prices
the company, and much more.
How to Buy and/or Sell a Small Business for
Maximum Profit: A Step-by-Step Guide - This book provides
a road map of suggestions, insights and techniques for both buyers and
sellers. It covers the entire selling process step-by-step—from making
the decision of when to sell or buy, through determining how to market
the company, to understanding the various legal & financial
documents involved in a sale, and on to closing the deal and handling
the transition afterwards. This book is geared toward the novice
entrepreneur who wants to buy or sell a small business. Topics covered
include: finding and evaluating a business to buy and/or sell, how to
value a business, raising the necessary capital, evaluating a business
financial condition using discounted cash flow, excess earnings, asset
value, and income capitalization, brokers, leveraged buyouts, letters
of intent, legal and tax concerns and contracts.
155 Legal Do's (And Dont'S) for the Small
Business - One of the most difficult aspects of starting and
running a small business is knowing what are the requirements for
compliance with the law ... and what legal pitfalls to avoid. This
user-friendly guide, written by a practicing attorney, features a
format that offers helpful cross-references and quick access to 155
major legal do's and don'ts in a variety of subject areas, including
international transactions, intellectual property, contracts,
computers, business succession planning, and more.
How to Really Start Your Own Business
- W.D.Bygrave, professor of entrepreneurship, Babson College "Gumpert's
how-to book is simply the best. No would-be entrepreneur should launch
a business before reading this book."
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