This article are provided for information purposes only, and are not intended as legal advice.

When buying a business – what questions should you ask? – Part I

November 4th, 2008

Why is the owners selling the business? Does his/her explanation make sense or does it raise a red flag indicating that there could be problems with the business?

Did you look at the last three years of external financial statements or were you only shown internally prepared financial statements?  You should always use the external financial statements and agree them to the tax returns and notice of assessment to confirm that these financial statements were those which were filed with the tax authorities.  Never look at normalized financial statements, always start with the actual financial statements and then make adjustments to normalize the income.

I had a company indicate to me that the normalized profit was $600,000 per annum.  I asked to see the actual financial statements which bore no resemblance to the normalized financial statements.   It ended up that the normalized financial statements were projections which omitted many of the operating expenses of the company.  Three months after I was provided that information, the company closed its doors because it was not profitable.  If someone had relied on the normalized projections, they buyer would have experienced financial difficulties almost immediately.

Filed under: what questions should you ask? — Gary Landa @ 9:20 am

1 Comment »

  1. great post here

    Pingback by When buying a business - what questions should you ask? - Part I — November 5, 2008 @ 9:16 am

RSS feed for comments on this post. TrackBack URL

Leave a comment

You must be logged in to post a comment.