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
If the buyer must replenish stock immediately after closing, more cash will be required even though the purchase price is already paid.
What to check before moving forward
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.
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.
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.
Preparing for completion
Plan completion around outstanding conditions, deliverables, payments and post-closing responsibilities. An agreement in principle is not the same as a properly completed acquisition.
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:
- Working-capital and inventory trends
- Physical stocktake and inventory valuation
- 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.