Using Financial Information to Gauge Enduring Profitability

In this chapter, we will show you how to look at several financial measures of a business to quantitatively filter your prospects for enduring profitability. Most businesses, even small ones, keep accounting records that can be used to inform these calculations and measures; these should be provided to you after you sign a nondisclosure agreement with the broker or owner. Sometimes this information is kept by a bookkeeper, sometimes by the owner, and sometimes by a professional accountant. For now, assume that the financial information is collected accurately; we’ll talk more about how to verify this in chapter 14, “How Much Should You Pay for a Small Business?”

At this filtering ...

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