Purchasing a small business – What to request from a seller

30 Jun Purchasing a small business – What to request from a seller

We, at Unbehagen Advisors, are often asked by clients, that want to purchase a small business, the question, “What financial documents should I request from someone selling a business.”

It depends on the business that is being sold as to what specific financial reports and items are needed. You will likely have to sign legal documents to obtain their records, like a confidentiality agreement. Keep in mind that you are requesting financial information to analyze so that you may confident with the business purchase. If a seller is hesitant to provide the information that you request then you should likely consider this to be negative. Sometimes, a very, very small business will simply not have all of the information that you require, because they don’t have the sophistication or time as a small business owner to do all of the financial activities required to run a business. They are too busy running the operations and marketing/sales to focus too deeply on the finance and administration side of their small business. Ultimately, this may be one of the are selling the business, because they are overwhelmed. Larger businesses should have available all of the financial documents that you request. Likely, they have systems in place, and staff in place, to do so.

Keep in mind, if you own a business now, and one day want to sell it, it will be MUCH easier to do so if you keep solid books, tax records, payroll records, insurance records and accounting records. Your future buyers will be more confident in the business if you can show them more about your business financially. This is where Unbehagen Advisors can help!

The below is a basic list of items to request from a small business seller:

Monthly profit and loss statements (past 3 years)

Monthly balance sheet statements (past 3 years)

Monthly cash flow statements (past 3 years)

General ledger reports (past 3 years)

Business tax returns with accompanying depreciation schedules (past 3 years)

Employee payroll records and tax reports (all months and quarters – past 3 years)

Independent contractor listing (1099 recipients, 1099/1096 reports at year end) (past 3 years)

Inventory list, valuation and workpapers (all periods available – past 3 years)

Asset listing including VIN numbers on vehicles and identifying numbers on other assets, etc.

Vendor contracts

Sales contracts

Copy of other government compliance records and filings (sales tax, payroll tax, excise tax, etc)

Ask about legal claims and lawsuits outstanding

Ask about state and federal government audits in the past and outstanding

Insurance policy documents (declarations page)

Accounting audit or review reports (likely none in a small business)

Copy of leases

Copy of debt and liability agreements (loans outstanding, lines of credit, etc.)

Incorporation or articles of origination documentation and review if company is in ‘active’ status

Pro forma financials (if any)

Budget financials (if any)

List of owners and their percentage ownership

Requesting the above is a great place to start. Once you have gathered the above information that is available, schedule an appointment with your small business accountant, business broker and/or attorney. Further information will likely need to be gathered, but at least you have a good amount of information and financial documentation to get started with analysis for the possible purchase of your new business.

Contact Unbehagen Advisors when you are ready to purchase or start a new business!

Unbehagen Advisors
Tarpon Springs and Tampa, FL


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727-934-7759