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 II

November 5th, 2008

Review of the external financial statements is very important and previous blog articles discussed the different types of financial statements prepared by accountants.  Do not discard the importance of Internal financial statements, they can tell you if the revenue is seasonal or if the profits are earned throughout the year. 

Check to see if the sales trend is the same year after year.  Check to see the sales by the largest customers.  Are the largest customers the same every year or did the owner get one large order during the year which was unusual.  I saw a financial statements where the company had been awareded a government contract.  The product was manufactured over a two year period. The financial statements looked good however, it was discovered that the contract was in fact a one time contract, it was not renewed and the company had very few sales from other customers.  Remember prior year financial statements are a good indicator, they  may not always be a guide of what to expect as demonstrated in my example above.  You need to look at trends of the company, trends of the customer base and contracts.

Filed under: what questions should you ask? — Gary Landa @ 9:48 am

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