Operating a business is a lucrative way to earn an income and secure your family’s future. Buying an existing business is often easier and less costly than starting a new operation entirely from scratch. However, not all companies can flourish in the current economic environment.
Even when the company that caught your attention seems to be thriving, it is vital to do some financial research before finalizing the sale. You never know what hidden problems might affect your business organization once it changes hands.
7 things you need to know before your purchase
Scottsdale and neighboring Arizona communities can support a variety of businesses. However, researching the following financial issues can help you find a business organization to buy that has an ideal chance of succeeding:
- Financial status: Study income statements, balance sheets and cash flow statements going back at least three years.
- Revenue trends: Review revenue patterns to determine whether the business is earning or losing revenue.
- Financial ratios: Look for ratios addressing gross profit/net sales, net income/net worth and net income/total assets.
- Current debts: Find out how deeply in debt your prospective business is and whether there are any liens against the company.
- Working capital: Make sure the business has enough working capital to continue operating.
- Past due accounts: Find out whether the company has a large percentage of past due accounts and why.
- Tax returns: Review the business’s tax returns going back three years or more to identify other potential financial concerns.
Purchasing business organizations comes with less risk when you perform thorough research into all financial matters. It can also help to learn more about Arizona business laws. Legal guidance can help you decide if buying the business is wise.