2007-03-06 12:26:38 · 5 answers · asked by Anonymous in Business & Finance ➔ Small Business
Generally when you start the process to buy an existing business you sign a non-disclosure agreement and get the highlights of the recent (3 year) financial history. Then you negotiate a price and terms. This usually consists of cash and earn out. The latter item is a payout based upon the profitability of the company after you buy it. It lasts for several years. When you've agreed on all this you sign a letter of intent to buy the business. At this point you enter the "due diligence" period.
Due diligence means that the seller provides you with extremely detailed financial and other information about the company. This includes just about everything under the sun - all financial statements, major customer lists, major supplier lists, lists of intellectual property (trademarks, patents, etc.). What you are looking for is to verify that what you have been told it true. During the process the seller must not hold back any pertinent information. The letter of intent allows either party to call off discussions for any reason without compensation to the other party.
So, the answer to your question is that you find out from the seller and verify that what you have been told is true.
Several posters have said that you should negotiate with an attorney present. I disagree. Your attorney should be part of the process and write the documents necessary to close the deal but should not be a direct part of the talks when dealing with the seller. Lawyers mean well but usually end up hurting more deals than they help. In the best deals the seller meets your attorney for the first time during the close just as you meet his lawyer. Get the lawyers involved too early and I guarantee you that the odds of the deal happening go way down.
2007-03-06 12:43:47 · answer #1 · answered by Flyboy 6 · 0⤊ 0⤋
Personally I would ask for 2 years tax return (done by a CPA) as well as a YTD Profit and Loss statement done by the same CPA. It's your investment, you should be fully protected. And I totally agree with the other guy- ALWAYS transact these matters with an attourney present.
2007-03-06 20:33:17 · answer #2 · answered by happybostonian 2 · 0⤊ 1⤋
Yeah........you make them show you their finanial papers. EG: income statement, balance sheets.......etc.... This way if your business is nowhere near as profitable theirs was you can possibly sue. But, you have to prove they fudged the numbers they gave you.
2007-03-06 20:31:00 · answer #3 · answered by Nagitar™ 7 · 0⤊ 1⤋
Yes, you can go to the department of financial institutions website and look up the company and it will give their info as to date.
www.purpose-by-design.com
2007-03-07 00:28:05 · answer #4 · answered by Mommy3 2 · 0⤊ 1⤋
Ask for a copy of last years business tax (IRS) return .
That should be most revealing. ( for revenues & costs)
2007-03-06 20:30:40 · answer #5 · answered by kate 7 · 0⤊ 1⤋