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 profitable December sale may not be collected until March: accounting profit and actual cash receipts occur at different times.
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.
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.
Working capital
Working-capital needs can change month to month. Review receivables, payables, inventory and balances, and agree how working capital will be adjusted at closing.
Debts and liabilities
Distinguish liabilities that remain within a company from those that may arise in an asset or business transfer. Contractual risk allocation does not automatically extinguish legal duties owed to third parties.
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.
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:
- Bank statements and reconciliations
- Financial statements for the last three years
- Ageing schedule of outstanding receivables
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.