FAQs for Step 69: Provide Historical Financials
Q: I’m buying an existing business and the owner is being dodgy about providing full financials for me to include in my business plan. Is it okay to leave them out?
The direct answer to your question is that it’s almost never ok not to view the financials (if they exist), but in some cases it might be appropriate to leave them out of the business plan.
This is a difficult question to answer because there are so many possible scenarios, but we’ll try anyway. Our first concern is you. If you’re buying the business from someone you don’t know and they are not upfront with the financials, the best advice is usually going to discontinue pursuing the deal. Usually, lack of financial statement or information means the seller is at best horribly disorganized or at worst, dishonest.
If a business seller is not forthcoming with financial information, the first step is to determine why. Here are a few possible reasons and actions:
• If the owner doesn’t have the information, you have every right to ask why not. If the owner hasn’t kept up on basic bookkeeping and accounting, you have to ask yourself how much of a business you’re buying.
• If the owner doesn’t think you’re a serious buyer, but actually has financials, initiate a discussion – clarify that you are serious, but that you will not proceed without seeing the financials, and ask what the barriers are to getting financials.
• If the owner doesn’t trust you to keep the financials confidential, you can offer to sign a non-disclosure, or to have the owner provide the financials to your accountant. Confidentiality can be a legitimate concern. Perhaps the owner thinks you’re a competitor trying to get a look at the books.
• If the owner is hiding something and simply doesn’t want you to know the truth, drop it and find a different business to buy.
• If the owner is simply disorganized and is someone you know (or perhaps have worked for) and trust, and if you’re buying assets only, not the business entity, proceed with caution.
We have probably what-if’ed this to death. Forgive us if we’ve not included a scenario to cover your particular situation. Remember, there’s a lot of smoke and mirrors around money and it’s buyer beware! Generally, if you’re hoping to borrow funds to buy the business, no financials means no loan. Transparency rules!
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Email us at faqs@riskbuster.com
We welcome all questions, comments and feedback and look forward to hearing from you!