Buying a business is a huge decision and probably one of the most important decisions you'll ever make. That is why you need to be very careful and to weigh up a lot of factors before you make that BIG decision.
One of the critical steps you need to take is to review sales data so you can project the future of the business you're buying.
Ask for three years' sales data: It's non-negotiable
As a minimum, make sure you receive the last three years sales data. And in particular the last twelve months sales data on a month-by-month basis, up to the current month.
You may hear comments like these:
“The accountant hasn’t done the figures yet.”
“We don’t have current sales figures, it’s too early.”
So what should you do in response to those comments? Just ignore them.
Unless you’re buying a business for reasons other than trading, then this is a non-negotiable “must have” — these figures MUST be supplied to you.
Tip: This is the most common “cheat” area when buying a business. Sellers tend to inflate the sales numbers to make the bottom line look good.
Here’s what to watch for:
✅ Examine sales in recent months.
✔ Look for negative trends or even spikes of increased sales. Review the business’s marketing history to ensure no significant, unusual sales have taken place.
✔ Compare month-on-month data between the years to notice any significant variations.
✅ Depending on the type of business, ask for the weekly or monthly customer count.
Simply applying an average sale value will support total sales — or not.
If it’s a high-traffic business — simply stand at the front of the business and count the people going in over a period of time.
✅ Look at accounts receivable.
Customers not paying? Customers on preferential credit terms? A good measure is the average time, in days, it takes for customers to pay. Look for any trends in this area.
✅ Look at the customer listings.
Who has and has not traded with the business over the last six or twelve months?
✅ Review their approach to marketing.
Try to determine if their marketing approach is good, bad or ugly. The ugly stuff could indicate opportunity.
✅ Review contact information such as email lists for currency.
Be aware of long inactive lists.
✅ If the business sells goods, review the stock listing for stocks not moving in recent times.
✅ Review the geographical territory in which the business operates and determine if there is scope for future growth.
Any significant variations or concerns need to be questioned.
In validating sales data, remember to keep emotions out of the equation. Deal with facts. And yes, discount anything not supported by facts.
These tips are a good starting point, but you must realize that buying a business requires a lot of thinking considering this could be one of the most important decisions you'll ever make.
That's why if you need professional help or a tool that can give you peace of mind, then by all means, seek the kind of help you need.