Buying a business is a scary thing. And there is a direct correlation with the quality of the records and the sale “ability” of the deal. The simple fact is that buyers and their advisers relay upon those books to prove to them what the business is really doing. That being said there are some realities that buyers need to live with.
1. Being a business owner is hard and taxes on business owners makes it very difficult to operate. The simple fact is that banks generally do not lend or offer favorable lending terms to business owners. In almost every circumstance I have ever seen the operators of businesses use credit cards, lines of equity, and personal guarantees to finance operations. Regardless of your political position this is reality and business owners have to scrape and scratch to survive in a less than business friendly environment. So what does that mean to you? It means you need to understand how sellers operate and recognize that you too may do the same.
2. Balance sheets mean squat: The reality is that a balance sheet in the small business environment is prepared primarily for tax purposes. Sellers and their accountants manipulate the balance sheet to impact their taxes….yes they mean something but they must be taken in context of #1 and what the seller is trying to accomplish tax wise.
3. Not all the important info is on the paperwork…and there are other items industry specific that frankly can be just as important or more important than a profit and loss. (Talk to an educated #businessbroker or #CPA ).
4. Yes there is cash in business and yes people do pay for it even if unreported. Believe it or not but novice buyers lose deals cause experienced buyers get this variable.
5. You will not see audited books…..this isnt General Electric.
6. Small business is a knife fight…..not a Nuclear War……the objective of making money remains but the battlefield and tactics are different.
In short if a seller has good books and records you can expect to pay a premium because they are rare. If you are smart you will learn there are KPI (Key Performance Indicators) outside of financial docs so you need to understand them and recognize their value.
For more on this topic go to my website at https://yourfloridabusinessbroker.com