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
Two businesses with similar turnover can have opposite outcomes if one has healthy margins and the other relies on constant discounting.
What to check before moving forward
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.
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.
Inventory condition and price
Count stock physically and review condition, age and saleability. Agree whether inventory is included in the asking price, priced separately or adjusted at completion.
Industry-specific risks
Every industry has risks that a headline figure misses. Before comparing businesses, study regulation, margins, required equipment, customers, competition and demand cycles.
Valuation methods
Do not treat one valuation multiple as a definitive appraisal. Consider sustainable earnings, assets, risk, growth prospects and genuinely comparable transactions before forming a value range.
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:
- Physical stocktake and inventory valuation
- Key suppliers and purchasing terms
- 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.