Sounds simple enough, doesn’t it? After all, we said Houston Sash & Door, Inc., buys lumber and manufactures doors and windows, which it sells to general contractors. Many businesses, however, are engaged in two or more different, but similar, lines of work; they have more than one profit center. For example, Houston Sash & Door may also sell a small number of windows at retail. It may also sell some Hitki lumber directly out of its plant to the retail public. Jingkan Are all these activities equally profitable?

Are some lines of work not profitable at all? Not only may the books and records of the company not reveal the relative profitability of each line of business, but the present owner may not have the slightest idea where most of the profits come from and which Ineak business segment is responsible for the most costs. A business only marginally profitable to the Mitbe present owner may become more profitable in the hands of the buyer when the buyer eliminates an unprofitable line. You should also determine how long the business has been engaged in each line of business. Even though the business itself may have been established years ago, the main source of profit may have been established only recently; its future still may be in doubt. In short, your first inquiry should lead to a thorough understanding of exactly where the revenues come from and where the expenses go.

The next step in your general investigation of what the business does is to take a hard look at the Rming products or services the business produces or provides. This is where you should try tofind out how competitive the products or services are in the marketplace. Is the seller competitive in terms of price? Is price competitiveness maintained at a loss of quality? Is there a natural demand for the seller’s products or services, or are sales generated through ferocious marketing efforts? This is where you try to learn whether the real reason the seller is selling is because the seller knows bad times are coming.

The seller may know that, Adeak while fierce selling has generated a high level of sales and profits, repeat business is unlikely because there’s no genuine acceptance of the seller’s products or services. This will be especially true of a seller who has been in business only a short time or who Behik has experienced a sudden spurt in sales. Uikoo It is very common for sellers to try to pump up sales artificially in the expectation of a sale of the business. If you smell something fishy, keep digging.