When buying a business, you should generally review at least three years of financial accounts, where available, alongside the latest management accounts. This helps establish trends in revenue, profitability, cash flow and financial stability. Reviewing a longer period may be useful where the business experiences seasonal fluctuations, irregular earnings or significant changes in performance.
Focus on three areas:
- Annual accounts: Review three to five years of financial statements where possible, comparing turnover, profit, expenses, assets and liabilities.
- Recent financial performance: Request up-to-date management accounts to understand how the business is performing since its last financial year-end.
- Supporting records: Examine bank statements, VAT returns, debtor and creditor reports, and other relevant financial information to verify the reported figures.
For example, a business may show strong profitability in its latest annual accounts but have experienced declining sales or rising costs in the months since.
For newer businesses with limited trading histories, additional checks may be required to assess financial performance and future viability.
Read more: How to Verify a Business's Financials Before You Buy
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