I am looking to buy a retail business taking 500,00 per annum and have requested signed accounts from the owners accountants. But I am told by the selling agent that the owner does his own accounts.
I don't want to be too cynical but what alternatives do I have for making sure all is what the owner presents me on a bit of paper. I feel he is genuine but can I trust these sort of figures or???
Ken
Post the figures up here (make sure you do it anonymously) and the Chartered Accountants can tear it to pieces and tell you what to ask. Failing that get proper professional advice from a CA.
Eric
In message , Troy Steadman writes
The trouble with that is those who read the figures here will have absolutely no way of knowing if they are true or not.
In message , Ken writes
Your misplaced comma makes it unclear what the real turnover is. If it is £500,000 then insist on Audited Accounts at the vendor's expense if that fails just walk away form this and forget it.
If it is £50,000, then you have a judgement to make. Ask for substantiation of the figures by way of sight of Bank Statements, invoices paid and issued etc., and the actual books he writes the figures in, or full printouts form his accounting software. Also observe the business in its day to dau operation. The rest is up to you.
Ask to look at the underlying records, eg. bank statements and invoices.
If the business is VAT registered, you could also ask to see copies of the VAT Returns. Very few retail businesses overstate the turnover on their returns
Bob
I disagree, many people are capable of doing their own accounts, there are plenty of ways of auditing them. If the business is a shop for example I would walk into it and get a feel for how it is being run, how many customers per hour, do they seem satisfied? What they are buying?
I would walk past the owner's house and see how he is living, is he driving an old banger or a swish 4x4? You can't spend it unless you are earning it (or borrowing or stealing it). I would look at the VAT returns (if any) and the bank statements and I would pretty soon be able to validate or invalidate the accounts by these sorts of methods.
You'll never be *absolutely* sure but you are performing more cross-checks than the average CA does when he rubber-stamps whatever his client puts under his nose.
Also ask to see his Self Assessment Tax calculation he should get from the IR and see what he tells them his income is. It says SA302 on the bottom left corner.
Cross check some of these things. So eg the amount due per his VAT returns box 5 should appear as a payment on his bank statements and compare the amounts in his accounts with his tax returns (he should have copies), they should show the same profit figure, then reconcile his book profit to the figure on the SA302 by adjusting for the various disallowable items on the tax return.
Or maybe even the unexpurgated files out of the accounting package...
So suppose he's driving a swish TVR. What does that tell you about the business? Probably that the guy's a drugs muggler who's been laundering his ill-gotten gains through what would otherwise have been a heavily loss making venture. He's now selling the shop because he's cleaned as much money as he needs and is now "retiring" to set up a strictly legit B&B in Worthing.
In message , Ken writes
What kind of business is it? Can mere judgement tell you something about his figures:
e.g. If he is stating t/o at £50,000 per annum, it would be hard to think that he is overstating it with most businesses.
If the margin is say, 100%, (i.e. buy from wholesaler for £1, and sell for £2), then he has only £25K before any expenses after stock - not very exciting!
John
It is 500,000 and looking at the business there is no doubt it is very busy with an excellent name but I was just wondering what I could ask for and what is reasonable to expect the owner to provide. Your reply has given me some tips but I now wonder whether to get my accountant to raise direct with the owner or whether the owner will expect my dealing through his agent but who seems a bit dismissive of the issue.
Ken
Richard
Sorry it is 500,000 with GP of 120,000 and NP 85,000.
Ken
If it is a consultancy business, there may be very little expenses, but you probably wouldn't want to buy such a business.
In message , Ken writes
I wouldnt rely on anything the agent says at all.
Whilst your accountant might know the right questions to ask, he cant be sure that the vendor is telling him true answers unless he can providing supporting evidence along the lines I described. If the vendor will not deal directly with your accountant then walk away.
The 2 main things I would want to know are the accuracy of the accounts and the valuation of the business.
How much are you prepared to spend to find out?
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