| 1.) Most Small Business owners have considered, or will | | | | 10.) The income statement is a summary of the |
| consider, selling their business. | | | | revenue and expenses of the business during a |
| 2.) Most prospective buyers do not follow through on | | | | specified period of time. |
| the urge to buy a business because they find the | | | | 11.) If the seller's financial statements are prepared by |
| prospect of buying a business too complicated. | | | | an independent accountant, the statements should |
| 3.) Although it would be impossible to point out every | | | | show whether they were (1) prepared after an audit |
| single item necessary when buying a business, the | | | | of the seller's accounts, or (2) prepared from the |
| major requirements are: Deciding on the type(s) of | | | | seller's records without verification by audit. |
| business to buy, Finding the right business to buy, | | | | 12.) Most small companies do not have their records |
| Determining the condition of the business that is being | | | | audited annually, but without an audit it is almost |
| considered for purchase, Valuing and properly pricing | | | | impossible to tell how accurate the statements really |
| the business, Financing the transaction. | | | | are. |
| 4.) Occasionally, a business that is unique and very | | | | 13.) If a buyer wants to invest money in a business that |
| simple almost manages itself. But if the business is in a | | | | is being sold, he should be concerned about receiving a |
| competitive field, management ability is probably the | | | | fair return on his investment. Many businesses can |
| most important requirement for success. | | | | make a profit for a short time (1 to 5 years); not so |
| 5.) A business owner will need to have (or develop) | | | | many operate profitably over a longer period of time. |
| the following important skills: Effectiveness with people, | | | | 14.) The buyer of a small business should try to |
| Business and financial management abilities, Experience | | | | determine the risk factor of the new business, though |
| in the industry. | | | | this is difficult at best and in many cases impossible. |
| 6.) Buyers are usually tempted to consider value as a | | | | 15.) The seller of a business must furnish a list of his |
| fair price for tangible items such as equipment and | | | | creditors to the buyer and the buyer should give notice |
| inventory. These factors are important, but they have | | | | to the creditors of the pending sale. Not doing so can |
| value only to the extent that they contribute to future | | | | result in attachment of the property after the sale, by |
| profits. So the true measure of a business' value is its | | | | creditors of the seller and voiding of the transaction. |
| ability to produce profit. | | | | 16.) A buyer generally has two options when financing |
| 7.) Before buying a small business, the prospective | | | | the purchase of a business: Equity Capital is cash, |
| owner should ask the following questions: i) What am I | | | | whether or not it is supplied by the buyer (e.g. from |
| buying (or selling)? Is it a business or a building full of | | | | friends, family, venture capital, etc.) Debt capital is |
| equipment and inventory? ii) What return would I get if I | | | | borrowed money and may be from a bank or the |
| invested my money elsewhere-in stocks, bonds, or | | | | seller him/herself (see $0-Down Strategies). |
| other business opportunities? iii) What return should I | | | | 17.) In determining how much debt to incur, the buyer |
| get from an investment in this business? | | | | should consider how much money he/she has and |
| 8.) The results of the financial transactions of every | | | | how much he/she is willing to invest in the business. |
| company should be reflected in its periodic financial | | | | The less equity from the buyer, the more debt capital |
| statements. These statements are extremely | | | | is needed. |
| important in buying a small business. They were | | | | 18.) In figuring out how much debt can be afforded, the |
| prepared for the seller, of course, and their contents | | | | prospective buyer should consider the business' ability |
| are available to him. But the buyer, too, should be | | | | to keep up principal and interest payments. |
| aware during the early stages of a buy-sell transaction | | | | 19.) Goodwill, when it exists, is a valuable asset. It may |
| of the information contained in financial statements. | | | | result from a good reputation, a convenient location, |
| 9.) The balance sheet is a statement of the financial | | | | efficient and courteous treatment of customers, or |
| position of the business at a given moment in time. | | | | other causes. |