Conference nyoss1::market_investing

505.0. "Advise on buying a business" by PUFFNS::VICKERS () Wed Jun 23 1993 19:04

    Hello,
    
    How do you go about buying an established business?
    
    I am sure some of you may have some suggestions on what I should 
    say to my sister who is intent on buying out a business which is 
    said to have the advantage of being in a prime location.  
    
    If I were the decision maker I would think that I would have lots 
    of questions answered before I jump simply because it is in a "prime" 
    location (she has not signed on the dotted line but getting close 
    to it before doing the necessary investigation for fear of loosing 
    an opportunity).  
    
    What are the questions to ask and how do you go about getting the 
    answers? For instance: if the seller tells me that the business 
    generates $X/month I would want to verify that figure.  Do I ask for 
    a tax return or do I take a "bean counter" with me, park my car 
    infront of the business and count the customers coming in and going 
    out (smile) if I do not get a tax return? How much should (% of 
    total) "goodwill" be worth anyway? (What she is buying are the business 
    license and property lease transfers & equipment)
      
    I really do not have the time to research this to give my sister a 
    good advice. She is a hard worker but not a good business person (come
    to think of it nor am I!) She had started similar business before 
    (not bought out) but at a less than ideal location and may luck out
    this time around.  I am afraid she may be paying too much, risking
    all of her savings and borrow on top of it and I want to make sure
    I do my part to help her an informed decision.
    
    Thank you inadvance!
    
    Lonnie
    

	1. Get someone who knows about audited accounts to check the
	balance sheet........and it's graveyard, the P+L.....what has moved in
	the last year, compared with previous years.
	What are they hiding, what are the intangible assets.
	What do the accounts recievable and payable look like, waht are the days
	outstanding on both.
	What liabilities are you taking on.
	

	2. Touch, smell, and feel those assets

	3. Look at businesses in a similar field, what do their accounts look 
	like, whats are their assets,  etc.....


	Heather

    One of my friends is an auditor (audits companies prior to
    acquisition).  From what he describes, few of the companies he 
    audits have straight books.  
    
    M

Get a tax return.  If they won't give you their latest
tax returns, they aren't really interested in selling
(or they're hiding something and you shouldn't be interested
in buying).

The bottom line is that people report as little profit
as possible to the IRS and so this gives some balance to
the rosy picture businesses that are for sale like to
paint.

My small business graduate teacher says if you can't get the last 3+years of
tax returns and balance sheets, walk away.  And if the numbers on the books
don't match the numbers on the tax returns, RUN away!

g.

    Tax returns are of limited value.  Remember, anyone who paints a rosy
    picture on some financial reports can also pick up some blank tax forms
    and put the same numbers on them.  How do you know these tax forms were
    actually sent to the IRS ?
    
    Buying a business is tricky.  Start your own, or if you must buy one at
    least get an accountant and business lawyer to review the deal with
    you.