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 distributor may report accounting profits yet struggle with cash if customers pay in 90 days while suppliers require earlier payment.
What to check before moving forward
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.
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.
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.
Budget beyond the purchase price
Calculate not only the purchase price but also the cash needed to operate after completion. Allow a buffer for advisers, repairs, applicable taxes and working capital.
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:
- Bank statements and reconciliations
- Ageing schedule of outstanding receivables
- Financial statements for the last three years
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.