Important Financial Information

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A buyer purchases a business based on the financial history of the business, so good financials of a business that is performing well and has growth potential are important to see if there will be a good return on the investment.  Many purchasers of businesses know very little about finances and records necessary for a business.  A little knowledge is all you really have to know.  It is important to select a business accountant and a business attorney to assist you with the business.  How much you will desire their services will depend on your knowledge, your time, and the size of your business; but those relationships are important for the success of your business.  You are probably more interested in developing your business than the record keeping of it.  Remember, you don’t have to know everything; you just need to know where to get the information.  

As you prepare to purchase the business, you will write a business plan.  As you go through this process, your knowledge of the entire business, including finances, will become familiar to you.  You purchase a business based on the financial history of the business, but you prepare a plan to project what you expect to earn.  An advantage of purchasing an on-going business is that you have the financial information for usually three years, which you can use to help you set up your record keeping system.  You may want to have a business accountant assist you with this.

Going over the financial statements will make you familiar with business terms as you analyze the financial condition of the business.  The business plan will help lenders see you are serious and understand the business and will also help you be a successful business owner.  You will find the money you spend for help from your attorney and accountant will be well worth it to have everything set up as it should be.
There are some factors that affect every business.  There is always uncertainty about the future, so you must have a plan to deal with changes.

We love positive changes, like inflation, which is the rise in the price of goods and services, which can positively affect your business.  When the economy is growing, people have more money to spend.  Because the rate of growth has increased since the election of President Trump, we have seen steady growth in our economy, better wages, and more jobs.  Businesses have grown and hired more employees.  Because of the tax cuts and deregulation, we see prosperity in everything.

Taxes are expenses we all pay to the government.  As mentioned above, the tax rate determines the amount we must pay.  We are all familiar with income tax, but there are other taxes you pay for your business.  Your accountant will guide you through the steps you need to take to be sure you are paying everything required for your business.  When you set up your business, you will decide on the dates for your fiscal year to begin and end.  As your personal income tax is paid for the calendar fiscal year of January 1 through December 31, many businesses have their fiscal year start and end in the middle of the year, like July 1 through June 30.  That gives some room to pay some things in the best way to adjust taxes from one time to another.  Before you get too excited, this only delays taxes; and all of your taxes must be paid.  By having different fiscal years, all of your income taxes are not due at the same time.  One final note is that you always pay your taxes, but you don’t want to pay more than is required.  There are deductions you can legally take, so it is smart to find out what they are and take them.  

As I mentioned earlier, be smart and find a good business accountant and business attorney when you purchase your business.  Their value is well worth the cost.  Your business broker will guide you through all of this.   

  • Author: Pat Jones
  • Title: Business Owner - Business Broker
  • Company: Pat Jones Business Brokers
  • Company Website: http://www.patjones.biz/
  • Date: August 22, 2019
  • Category: Buying a Franchise or Business
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