One of the best indicators of business health is a company’s financial statement. When considering the purchase of a company, make sure that a thorough examination of the company’s financial documents and statements for the past three to five years is conducted. Hiring a reputable auditing firm to look into the company is another way to ensure that all the pertinent information on the company has come to light.
Some important questions to ask about the financial status of a company include:
- What is the gross income of the company?
- What is the adjusted gross income of the company?
- What is the annual profit of the company?
- Do the company income and profit differ by a large amount?
- If so, where does that money go?
- What sort of expenses does the company have?
- How much money is spent on product development?
- How much money is spent on marketing?
- How much money is spent on special sales?
- What is the financial outlook on the company’s major suppliers?
- What is the financial outlook on the company’s major customers?
- Has the company ever been in financial trouble before?
The most information to have about a prospective company is how much the business earns, and how those earnings are spent. Many new business owners have entered into the company without understanding the intricacies of the business financial statement, and have found out in just a few short months of their purchase that the company heavily in debt.
The financial well-being of a company is the most important indicator of its health. Mysterious payouts, bad investments, and poor profit performance are all warning signs of a company to stay away from. Prospective buyers should invest a large portion of time on due diligence in this area.
