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How To Investigate Any Business Opportunity
though it is sometimes paid by the buyer, it is more common for the seller to pay the intermediary's fee.
An experienced intermediary can offer assistance in (1) pricing the business, (2) setting the terms, (3)
compiling a comprehensive presentation package, (4) professionally marketing the business, (5) screen-
ing potential buyers, (6) negotiating and evaluating offers, (7) making certain that proper legal steps are
taken. The result can be a considerable saving of the business owner's or business buyer's time and ef-
fort.
4. Evaluating The Business
The first step a buyer must take in evaluating a business for sale is that of reviewing its history and the
way it operates. It is important to learn how the business was started, how its mission may have
changed since its inception and what past events have occurred to shape its current form. A buyer
should understand the business's methods of acquiring and serving its customers and how the functions
of sales, marketing, finance and operations interrelate. General information about the industry can be
obtained from trade associations.
The business's financial statements, operating documents, and practices should be reviewed. A sum-
mary of the items to be reviewed follows.
Balance Sheet
Accounts Receivable
1. Obtain an accounts receivable aging schedule and determine if there is concentration among a few
accounts.
2. Determine the reasons for all overdue accounts.
3. Find out if any amounts are in dispute.
4. Are any of the accounts pledged as collateral?
5. Is the reserve for bad debt sufficient and how was it established?
6. Review the business's credit policy.
Inventory
1. Make sure the inventory is determined by physical count and divided by finished goods, work in pro-
gress and raw materials.
2. Assess the method of valuation and why it was used. (LIFO, FIFO, etc.).
3. Determine the age and condition of the inventory.