Charlie and Maribelle Brown have owned and operated a retail furniture store for more than 20 years. They have employed an independent CPA during this time to prepare various sales tax, payroll tax, and income tax returns, as well as financial statements for themselves and the bank from which they have borrowed money from time to time. They are considering selling the store but are uncertain about how to establish an asking price.
Prepare a brief written answer (no more than a couple of paragraphs) about what type of information is likely to be included in the material prepared by the CPA that may help the Browns establish an asking price for the store.
Reviewing the past and present financial statements prepared by their CPA, would allow the Browns to trend historical data such as cash flow and cost of operations. This, coupled with the current and projected economic climate as well as current and projected cost of living, would help the Browns to understand how much they spend to keep their business running as well as how much they’ve profited over time.
Although the information provided in the financial statements is not a concrete indicator, it is a good gauge of how the Browns’ business will perform in the future. Unless major economic changes or other unforeseen circumstances occur, historical performance often tends to remain constant. The Browns would be able to use most of the information provided by their CPA to determine a fair asking price for their retail furniture store.