This is an excerpt from Global BX - a business-for-sale exchange:
So, am I asking you to buy a business blindly? Based on the good word of the seller? No, I am asking you to do a little bit of due diligence. You are going to buy a business, for crying out loud. Understand whether the business is valuable or not. You are going to spend a big chunk of your savings and most of your time on this business; start doing the work before you purchase it.
There are many ways to verify the business profitability without looking at tax returns or audited financial statements. First, I would estimate the gross sales figures. For example, you can do it by looking at daily register records or adding up checking account statements and credit card statements (credit card paid by clients). However, the best way to verify gross sales figures is actually to spend a few days and observe the business. Count clients and see how much they spend. Then, estimate how much business is being conducted. Second, I would estimate all expenses. Simply list all the different expense items, such as rent, utilities, payroll, cost of goods, advertising, etc. and add them up. Now, you can estimate the potential profitability of the business. Maybe this sounds like common sense to you, but you would be surprised by how many business buyers don't consider this simple method as the most important tool to evaluate a business. Remember, even if financial statements are available they might be misleading by overstating the true profitability of the business, so you need to do this analysis anyways.
I certainly don't have time or opportunity to verify numbers. I'm sure the same goes for you and others on this board. The company should be interested in obtaining 3rd party verification to lend credibility. The great looking news that came out prior to today's open produced bid/ask .0001/.0002 and light volume - nothing! No one has confidence in the company-supplied numbers anymore.
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