Understanding Your Future Business’s Finances

It is not enough to simply know the business is busy. Remember, it takes more than just sales to turn a profit.

Keep reading as we take a quick peek at ways that you can dive deeper into the books to make an informed and confident decision.

Assessing Financial Documents

All (well-run) businesses have a financial paper trail that includes statements, balance sheets, and information on its revenue, debt, profitability, assets, liabilities, and cash flow. You’ll need to take a look at these, as well as tax returns and budget and forecast projections, to get a better idea of current and future financial expectations.

Analyzing Metrics

Once you have financial documents in hand, you can analyze key financial metrics, such as profitability, solvency, and operating efficiency. You want to get a grasp of net profit, gross margin, and average ROI. Look for indicators that let you know how quickly the business can meet its short-term obligations and the type of debt burden it carries.

Trends And Benchmarks

In addition to just numbers, you’ll also want to look ahead at trends in the industry. Is the business growing as quickly as others that might be considered competition? Are operating expenses appropriate and as one might expect? You also need to take a look at KPIs, such as revenue growth rate, customer acquisition costs, and benchmarks appropriate to the business’s specific industry.

More Than The Numbers

While understanding a business's financial health deals mostly with numbers, there are other things you’ll need to consider. Do an environmental audit, consider a legal review, and don’t be shy about looking at customer reviews, all of which can give you an idea of how the business is currently operating and how it’s likely to be viewed now and in the future.

Seek Professional Help

Another key step you can take as you turn your interest toward a specific business is to involve an accountant or CPA to help analyze financial data and point out any potential risk you may have missed during your own personal due diligence. First Choice Business Brokers can provide a list of professionals to assist in reviewing the financial data during the Due Diligence Process.

First Choice Business Brokers is a full-service business acquisition provider that can help you make an informed decision before you make an investment. Contact Russell Carriere today to find out more.