Are You Financially Ready To Buy A Business?

Are You Financially Ready To Buy A Business?

A frog in the style of Vermeer holding a tray of money

What is the first step to being financially ready to buy a business? Creating a personal financial statement can help you assess your financial health, identify areas of improvement, and plan for your future financial goals. Here are the detailed steps to create a personal financial statement:

Gather financial documents:

Collect all the relevant financial documents, such as bank statements, investment account statements, credit card statements, loan statements, mortgage statements, and any other financial documents that provide details about your income, expenses, assets, and liabilities.

List your assets:

Start by listing all your assets, including cash, investments, retirement accounts, real estate, and personal property. For each asset, write down the current market value and the amount of debt, if any, that is associated with the asset.

List your liabilities:

Next, list all your liabilities, including credit card debt, loans, mortgages, and other debts. Write down the outstanding balance, interest rate, and minimum payment due for each debt.

Calculate your net worth:

To calculate your net worth, subtract your total liabilities from your total assets. This will give you a snapshot of your financial health and your overall financial position.

Analyze your income and expenses:

Review your income and expenses over the past year to get an understanding of your cash flow. Write down your monthly income and all your monthly expenses, including fixed expenses (such as rent, utilities, and insurance) and variable expenses (such as food, entertainment, and travel).

Calculate your monthly cash flow:

Subtract your total expenses from your total income to calculate your monthly cash flow. This will help you understand how much money you have left over each month to save, invest, or pay off debt.

Set financial goals:

Based on your financial statement, identify areas where you can improve your financial situation. Set specific, measurable, achievable, relevant, and time-bound financial goals to help you achieve your financial objectives.

Creating a personal financial statement can be a valuable exercise that can help you take control of your finances and plan for your future financial success.  More importantly, your truthful and complete financial statement will help you figure out what you can afford in your potential business purchase. 

Even if you are working with a seller who is offering seller financing, they are going to want to know your finances and how much of a financial risk you would be if they sold you their business.  Also, preparing these statements will get you ready if you decide to use conventional or SBA financing.  Very few business purchases do not require some sort of financing.  Getting a jump on creating one will move you much closer to being ready to start the hunt.  More questions on what you need to do?  We are happy to help.  Call us today!


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