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
High EBITDA does not automatically leave enough cash to repay borrowings, renew equipment and pay a replacement manager.
What to check before moving forward
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.
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.
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.
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:
- Financial statements for the last three years
- Valuation assumptions and adjustments
- Bank statements and reconciliations
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.