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 workshops with identical EBITDA may have very different values if one needs major equipment replacements while the other has recurring contracts.
What to check before moving forward
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.
Understanding EBITDA
EBITDA can help compare operating performance before certain financing and accounting charges, but it is not cash available to an owner. Check adjustments, required investment and owner dependence.
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.
Equipment and assets
Check ownership, condition and realistic value of equipment, property and other assets. Separate operationally essential items from extras, and investigate liens or financing arrangements.
Using comparables
Use comparable transactions cautiously: industry, size, margins, contracts and location can change the value significantly. Advertised asking prices are not the same as completed transaction prices.
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
- Valuation assumptions and adjustments
- Working-capital and inventory trends
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.