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How do I validate a seller's claims of revenue?

Actually, I'm wondering both, how to validate claims of revenue and also how do I know if perhaps there was more revenue than the books show in this cash business? As honest as I hope most people are, I can't believe that his books reflect all revenue? Thanks.

Michael Kirkland

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Answers (3)
Rob Goggins
Great Clips, Inc.
Vice President of Franchise Development
Carver County, MN

Most financial/accounting advisors will strongly recommend that you value the business based on what's been shown to the IRS by the seller. In addition to what's been suggested I would highly recommend planting yourself outside the store (if it's a retail unit) and simply counting the number of customers walking in. Do this half a dozen times over the course of a few "average" weeks, multiply by the average ticket - which you can verify via the seller's verifiable information as well as industry averages - and you should have a good feel for what the business is producing in gross revenue.

Mar 25, 2009
Andrew Cagnetta
Transworld Business Brokers, LLC.
Premium Broker

Also, if there is cash, the only way to validate is through an observation period. But a observation period can be misleading (good and bad)

Mar 24, 2009
Andrew Cagnetta
Transworld Business Brokers, LLC.
Premium Broker

Hopefully through bank statements, deposit slips, and credit card statements that concur with invoices to customers you can get close to reality. There are some businesses out there that still have a cash revenue component. BUT these days, most people carry credit cards, debit cards, gift cards, and checks instead of cash. That fact makes it tough for me to believe any business has more than 10% in cash revenues these days. Unless they are asking for it or do not accept other forms of payments.

Mar 24, 2009

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