Small Business

Chapter 6
Discussion Questions

2.) When buying an established business, what questions should you ask about it? From whom might you seek information about the business?
Questions to be asked:
 How long has the business existed?
 What is the current status of all products and materials?
 How were the tax returns dispersed within the business over the past 5 years?
 What is the profit record? Is the profit increasing or decreasing?
 What were the sales records like over the past 48 months?
 What types of contracts are involved? (Leases, purchase agreements with suppliers, etc.)
 Can I see the lists of liabilities, accounts receivable, and accounts payable?
 Can I acquire a copy of the clearance certificate from the state tax authority?
 Was the equipment located inside of the building purchased or leased?
 Can I have copies of all advertising and sales literature?
 As the owner, do you have family, religious, social, or political connections that have been important in the success of the business?
 Why do you want to sell the business?
 Etc. (pgs. 136-137)

The information could be sought out through the current owner or through the analysis of sales, personal or financial records.

4.) Should one ever consider purchasing a presently unsuccessful business? No, low profits could be a result of things that can be difficult to change such as, the business image, the staff or employees who are currently working there, the way the business was operated, and the current location.

8.) Discuss the ways in which the tangible assets of a business may be valued. What is the most realistic approach to determining a business’s true value? Why? The value of tangible assets is determined based on one of three factors:
 Book value. What the asset originally cost or what it is worth from an accounting viewpoint; the amount shown on the books as representing the assets value as a part of the firm’s worth.
 Replacement value. What it