ForumsStarting a Business

I dont think looking at prior tax returns is enough to get a good understanding how accurate the numbers really are. The prior owner could have easily manipulated the numbers on his prior tax return..

If you are worried that the returns that you are getting are different than what was filed, you can use Form 4506 to request a copies of the returns that were filed or at least 4506-T for transcripts. The cost is nominal relative to the headache you might avoid. Most mortgage companies do this to ensure they are not getting bogus documents from prospective borrowers. The other party has to sign them. I would do three years and have them sent directly to you.

Form 4506 - http://www.irs.gov/pub/irs-pdf/f4506.pdf

Form 4506-T - http://www.irs.gov/pub/irs-pdf/f4506t.pdf

There is little concern that one would inflate income on a filed tax return because they would pay more tax as a result. More commonly you will see add backs to the tax return income for tax deductible "owner benefits" like excessive health/dental benefits for owners, inflated salaries for relatives, cars and business travel.

Hello!

I'm not sure exectly where you are in this whole process so I may being advising you to do things that you have already done. Obviously you have an idea about the Last Year sales but it seems not much other information. The first thing that you need to do if you haven't already done so is write a Letter of Intent to the seller. With a formal LOI you will get all of the information that you are looking for and proves that you are serious about the thought of purchase which will make a potential seller revise any misinformation that may be giving you.

What you will want include in an LOI is a request for the following things:
1. ALL finacials (this should incclude any wholesale bills which you will be able to combine and calculate)
2. Leases
3. Tax returns
4. Contracts
5. Legal documents
6. Insurance policies
7. Patents/ Licenses
8. Customer Lists (this will give you a definite idea of the ability to create that amount of revenue)

If they are unwilling to provide any of this information that is sign of a couple things. First, they may not be telling you the truth about their sales. Secondly, they may not have access to all of their records which could mean poor record keeping which is a huge factor in the way a business is run. Before making any offers you will need to do a company analysis, business valuation and business purchase and sales analysis.

Unfortunately, the wholesale bill will vary based on their suppliers so you will need to have actual records for proof.

If you have any questions or need help in any of these areas (including a formally written LOI). I would be happy to help.