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Checking numbers when buying businesses

On Behalf of | Jul 18, 2019 | Buying & Selling Businesses |

People in North Carolina who want to purchase a business should do their due diligence to determine the actual financial state of the business they are considering. This requires conducting a thorough financial analysis on the business to determine if the numbers that were advertised or provided by the seller coincide with the numbers in the financial statements.

There are many reasons there can be discrepancies in the numbers. They can include expenses being cut out to prepare for a sale, unjustified add-backs or poor recordkeeping. Buyers should never rely solely on the seller’s assertion of what the business numbers are.

Buyers should not accept the sales pitch that requires an accepted buying offer in order to receive detailed financial statements. It is sufficient to just provide the seller with financial verification that the deal can be executed. Once the seller has this verification, they should be willing to provide the buyer with the necessary financial documents that show the actual financial standing of the business. Buyers should also obtain from the seller a comprehensive accounting for all of the financial adjustments and add-backs. The seller has to be able to submit proof of the profits and sales for the business.

Before buyers give any of the financial documents they have received from the seller to their accountant, who will be paid to review them, the buyers should first closely review the documents for themselves. If they are unable to understand what is being presented in the documents, their accountant may not comprehend them either, which will require further communication with the seller.

An attorney who practices business law may protect the rights and interests of clients involved in the sale of a business. The attorney may review financial statements, negotiate purchasing contract terms or assist with valuating business assets.