| Buyers of small businesses often have the trouble of | | | | business. They key is to look for any red flags that |
| actually verifying the financial information that has been | | | | sometimes do occur when a business is for sale. |
| presented to them. The difficulty stems from the fact | | | | Business Inventory |
| that many small businesses are not as organized from | | | | Review the levels of inventory in the business and see |
| an accounting perspective as larger corporations are. | | | | if there are any swings that do not coincide with the |
| Also, small businesses often report earnings for tax | | | | level of revenue being stated. If inventory and cost of |
| minimization purposes so it is in their best interests to | | | | sales activity seems low for the level of sales |
| minimize reported income. For these, and many other, | | | | reported then ask the question and consult with your |
| reasons it can be a challenging to buy a business for | | | | accountant. |
| sale and know exactly what you are going for. If you | | | | Expenses on the books |
| are interested in purchasing a business in Canada, | | | | Sometimes a business owner may take some |
| there are steps you can take to get a clearer picture | | | | business expenses 'off the books' in order for the |
| of the results. | | | | results to look better. Sometime staff or supplies may |
| Financial statements | | | | be paid in 'cash' if it is such a business. Take a reality |
| Ensure that you, or ideally your accountant, review any | | | | check of the operating expenses and determine if it is |
| financial statements for the business. The statements | | | | a realistic level for the type of venture being operated. |
| should be prepared by an accountant. Sometimes for | | | | Mystery shop the business |
| a small business, the statements are simply put | | | | If the business for sale is one open to the public, such |
| together by the owner so these would require even | | | | as a retail store, spend some time mystery shopping it |
| greater scrutiny. | | | | anonymously. Go in at different times and at different |
| Tax information | | | | days to examine customer traffic levels. You will also |
| Review any and all tax statements and returns that | | | | see the number of staff working to give you a sense |
| the business has. Examine corporate income tax | | | | of employee costs. |
| returns, GST and PST filings (HST is coming to | | | | These points above are only a few of the issues you |
| Canada in 2010 so this will be different) | | | | should examine when buying a business. Consult with |
| Bank statements | | | | your professional advisors to help you with the due |
| Closely look at the bank statements. Make special | | | | diligence process. A business broker can also give you |
| note of large sums of money going in or out. You | | | | some insight into how to go about purchasing a |
| want to see a normal patter of bank activity for the | | | | company and what to look for. |