Before buying a business, request financial information that helps you assess its profitability, cash flow, debts and overall financial health. This typically includes annual accounts, recent management accounts, bank statements and relevant tax records. Reviewing these documents can help you understand whether the business's financial claims are accurate and whether its performance is sustainable.
Focus on three main areas:
- Financial statements: Request the last three years of annual accounts, where available, alongside recent management accounts. Review revenue, profitability, expenses and financial trends.
- Cash flow and liabilities: Examine cash flow statements, bank records, outstanding loans, creditor balances and working capital requirements to understand the business's financial obligations.
- Tax and supporting records: Review relevant VAT returns, corporation tax information, payroll records and customer sales data to help verify the figures presented.
For example, a business may report strong profits but have significant overdue customer payments, which could create cash flow difficulties after acquisition.
Some sensitive information may only be shared after signing an NDA or progressing further through the acquisition process.
Read more: How to Verify a Business's Financials Before You Buy
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