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 III

November 6th, 2008

Look at the type of expenses which are incurred by the owner.  Did the owner get value for their money or were they just wasting their money?

I saw a case where the company spent $80,000 on advertising.  The revenue was 100% contracts which were tendered bids.  As a result, the entire advertising budget was ineffective and could be discontinued without impacting the continuing operations.  The question that comes to my mind, does the owner consider his poor judgement not to be a regular expense therefore should be part of normalized earnings? Be careful, poor management decisions, in my opinion, should not be considered part of normalized earnings, they should be treated as an operating expense.  If the company tried one thing this year, it failed, tried another next year and a third the year after, these are all operating decisions and not normalize adjustements in my mind. 

Filed under: what questions should you ask? — Gary Landa @ 7:22 am

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