O’Henry’s Data Services, Essay Example

Abstract

This paper is in response to a word problem in which the topic of purchasing a business is being discussed. The owner of O’Henry’s Data Services is selling the company. In order to be sure that this company is worth the investment, the operating expenses and revenue are being evaluated.

Accounting Assignment: O’Henry’s Data Services

O’Henry wants to sell his business for at least the price of his ending capital which is $135,400. To find his ending capital, I subtracted his withdrawals from his capital. His total monthly income is $40,700 and his business’ total monthly expenses equal $32,050, which includes the manager’s salary of $3,000, bringing his business’ net monthly income to $8,650. I do not want to purchase this business for more than 20 times its net income which would be $103,800. Therefore, the best option would be to try to talk Mr. O’Henry down to that price, if possible or to come to an agreement on a price in between $103,800 and $135,400.

The most logical and fair choice would be to compromise and meet half-way. Therefore, I would offer Mr. O’Henry $118,600 for his business. My reason for meeting Mr. O’Henry half way is because he may be more willing to accept $118,600 than $103,800. Also, I would like to save myself approximately $15,000, if possible. I would take any additional revenue and invest it into making the business more profitable as my ultimate goal would be to continue the growth of O’Henry’s Data Services.

Mr. O’Henry’s small business appears profitable enough to invest in. Though it may not earn an incredible yearly sum, its industry is fairly stable and the business itself appears sustainable as well. It is an excellent opportunity for the beginning entrepreneur or someone who wants to invest in a solid business that will continue to produce results month after month.