BUYING/SELLING A BUSINESS

In buying or selling a business there are initial steps to be followed:

Financial Statements — Get statements for at least the last three and if possible five years. Statements should have a statement of operations (also called a statement of profit or loss), and a statement of cash flows — this may have not been prepared as it is not a mandatory statement but is very useful in looking at where the monies originated and where they have been used. This is the statement that commercial banks scrutinize carefully.

History of the Company — Find out what has happened over the years, how the business was run, who was involved and when the company was incorporated (if this is the case).

Marketplace — Find out who the competition is and how it has evolved over the years. Also determine who are the customers and the history of the relationships with them. Along with this assess the market need for your product (selling floppy drives does not have a long future for computers!)

Financing — How much do you need and where are you going to get it — this includes covering operations for the initial periods which in many cases extend over four even five years. Also you have to put together a budget for your personal needs.
If you are the seller consider if you are willing to extend terms for financing the sale.

Taxes — If you are the seller consider having the business incorporated and having it in existence for at least two years — there are some specific taxation rules that could allow for no taxes on the first $ 750,000 if the sale is done in a certain tax approved manner.

As the seller there also is a provision for the tax deferral of the proceeds of the sale.

Buying or selling a business is a complex activities involving bankers, lawyers and accountants however it is your financial engine so invest the best to get the best!