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How To Investigate Any Business Opportunity
ness in terms of sales, profits, and the number of employees.
It is important to determine if the desired business is to be one that is profitable and stable or one that is
losing money and in need of new management. The more profitable and stable a business, the more it is
likely to cost.
2. Preparing The Business For Sale
Nearly every privately-held business is operated in a manner that minimizes the seller's tax liability. Un-
fortunately, the same operating techniques and accounting practices that minimize tax liability also mini-
mize the value of a business. As a result, there is often a conflict between running a business the way
an owner wants and preparing the business for sale. Although it is possible to reconstruct financial state-
ments to reflect the actual operating performance of the business, this process may also put the owner
in a position of having to pay back income taxes and penalties. Therefore, plans to sell a business
should be made years in advance of the actual sale. This will permit the time required to make neces-
sary changes in accounting practices that demonstrate a 3 to 5 year track record of maximum profits.
Audited statements are the best type of financial statements because they are most easily verified by
the buyer. However, it is not uncommon for a business's financial statements to be reviewed or com-
piled. Good financial statements don't eliminate the need for making the business esthetically pleasing.
The business should be clean, the inventory current, and the equipment in good working order.
Next, a valuation report should be prepared. The valuation report eliminates guesswork and the painful
trial and error method of pricing that so many owners rely on. Finally, a business presentation package
should be prepared. All facets of the business should be addressed in this document. They include:
·
A history of the business.
·
A description of how the business operates.
·
A description of the facilities.
·
A discussion of suppliers.
·
A review of marketing practices.
·
A description of the competition.
·
A review of personnel including an organizational chart, description of job responsibilities, rates
of pay, and willingness of key employees to stay on after the sale.
·
Identification of the owners.
·
Explanation of insurance coverage's.