Are you planning to buy an established business? If so, you have a great opportunity to earn profit from the get-go. But you also take on the risk that something negative in the business will go unnoticed. One way to avoid this problem is to work with a certified public accountant (CPA) to help you assess the business's standing. Here are a few things they'll help you look for.
Is the business really worth what the owner is asking you to pay? Business valuation is tricky, and you may need the services of an independent business appraiser. However, your accountant can help ensure good appraisals of large assets, understand the value of intangible assets, and will assess the income history.
Obligations and Liabilities
What liabilities are you agreeing to take over legal responsibility for? Unexpected liabilities—like a pending lawsuit, unpaid taxes, or receivables in areas—could doom your venture before it ever gets going. Your CPA will look for signs of hidden liabilities and help you understand the financial ramifications of those you know about.
The financial statements are, hopefully, your window into the real state of the business's income earning potential. If the statements haven't been independently audited, your CPA is your best resource to determine what they really say and how reliable they appear to be. They will alert you to potential discrepancies, show you where to ask more questions, and analyze strengths and weaknesses.
Your attorney should look through all contracts and leases you will take over to ensure there are no legal surprises. However, an accountant can also help you learn if these contracts are a net financial positive for you and how they affect your profit margin.
How well does the business run its day to day operations? Is there significant room to improve how they track income and expenses? Is money being left on the table, so to speak, due to lax bookkeeping and accountability? Does it pay extra costs to make up for a failure to manage money? A good accountant will see indicators that there is (or is not) profit to be made by cleaning up business practices.
Due diligence, the effort to glean all the information possible about a business before buying, is key to your new endeavor's success. Learn more about how a good accountant can help you complete your due diligence with confidence by meeting with certified public accountants in your state today.