Your Friend Susan Is Considering Purchasing an Existing Business

question 14

Essay

Your friend Susan is considering purchasing an existing business. How would you explain to her what due diligence is, why it is important, and the critical areas of it?

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Definitions:

Balance Sheet

An accounting document summarizing assets, liabilities, and owners' equity of a business on a specific date.

Sales On Account

Transactions where goods are sold and payment is deferred, allowing the buyer to pay at a later date, typically generating accounts receivable for the seller.

Average Sale Period

The average time it takes for a company to sell its inventory, often used to assess the efficiency of sales operations.

Financial Statements

Formal records of the financial activities and position of a business, person, or other entity, presenting its financial performance and position over a defined period.