Business figures become useful only when you know what they measure, where they come from and which costs or risks they omit. Sound decisions connect reported earnings with cash flow, investment needs and the purchase price.
Practical example
A high-turnover shop may still earn little if product margins are thin or rent and staffing costs are excessive.
What to check before moving forward
Accounts and financial history
Ask for several years of accounts and recent management figures, not one isolated number. Reconcile accounting data with tax filings, bank information and segment performance where appropriate.
Real operating margins
Analyse margins by product or service and their trends, not just overall sales. Input costs, wages, returns and discounts may erode profitability.
Actual cash flow
Analyse actual cash receipts and payments, collection periods, suppliers and reinvestment needs. Attractive accounting profits do not guarantee enough liquidity to service debt and keep trading.
Owner dependence
Assess how dependent the business is on its current owner. If one person brings in customers, runs operations or holds vital know-how, a buyer needs a realistic replacement plan.
Seasonal trading
Study at least a full annual cycle where trading is seasonal. Compare peak and quiet months, temporary staff, rent, inventory and off-season liquidity needs.
How to use this guide
Start by requesting sources for each important claim and noting what remains unverified. Cross-check answers against records, visit the operation where appropriate and bring material risks to an adviser before committing. Never fill missing financial figures with your own assumptions.
Evidence worth requesting before you proceed
A sales description is a starting point, not proof. These documents help distinguish verifiable facts from expectations:
- Financial statements for the last three years
- Bank statements and reconciliations
- Anonymised revenue by customer
Request information appropriate to the negotiation stage and respect confidentiality arrangements. Sensitive documents may be shared only after a buyer is identified.
Final takeaway
A sound transaction starts by defining what changes hands, checking the facts and documenting the agreement. Use this guide as a map of questions, not a replacement for a review tailored to the actual business.
General information only; not personalised legal, tax or financial advice. Rules depend on the transaction and may change.