Read the profit and loss statement, balance sheet and cash movement together. Reconcile material revenue to delivery records, invoices and collections. Then adjust for costs a new owner will actually face, including work the seller currently performs.
Start with three different questions
The profit and loss statement asks what income and expenses belong to a period. The balance sheet shows assets and liabilities at a date. The cash-flow view explains the movement of money. None is a substitute for the others.
A profitable month can still leave you unable to fund payroll if invoices remain unpaid. A large bank balance may include money needed for tax, leave, creditors or another obligation.
Build a reconciliation trail
Select several months, including an unusually strong and weak month. With your accountant, reconcile service activity to invoices, credit notes, the accounting ledger and bank receipts. Investigate differences rather than accepting a dashboard screenshot.
For privacy, begin with totals and de-identified samples. Agree the lawful scope before accessing identifiable service records.
Fictional example: A$100,000 revenue is not A$100,000 cash
A business invoices A$100,000 this month but receives A$72,000 relating to those invoices. It also collects A$18,000 from earlier months. Current receipts total A$90,000, while part of the new revenue remains in debtors.
Now ask whether any invoices are disputed, duplicated, credited after month end or unlikely to be collected. Do not treat all receivables as cash. Check the reconciliation over time so a single month’s timing does not mislead you.
Examine “adjusted profit” carefully
| Seller adjustment | Your check |
|---|---|
| Add back owner salary | Who will do that work, and what will they cost? |
| Remove a one-off expense | Is it genuinely non-recurring, or a recurring cost with a new label? |
| Add forecast growth | Is it historical earnings or an unproven assumption? |
| Exclude bad debts | Are collection losses an ongoing feature of this service? |
| Exclude compliance costs | Will the buyer need catch-up work or new ongoing resources? |
Keep an adjustment schedule with source, amount, reason and whether you accept it. Separate verified historical earnings from your future scenario.
Look beyond the income statement
Request debtor and creditor ageing, payroll and leave liabilities, tax balances, related-party loans, finance agreements, software commitments and leases. Ask which obligations are included in the price and which need extra funding.
Compare monthly concentration by service type and funding/payment arrangement. Check the reason for revenue changes. More shifts can increase revenue while reducing margin if additional staffing and travel are costly.
Build a 13-week cash view
For each week, list opening cash, expected collections, payroll, suppliers, tax, loan payments and closing cash. Add a lower-collection scenario. Put receipts in the week you reasonably expect payment, not automatically on the invoice date.
This cash view answers a different question from an annual debt-cover ratio: can the business meet obligations when they fall due?
Questions to take to the accountant
Ask for the main reconciliation exceptions, sustainable earnings after replacement management, transaction costs, working capital required at settlement and liabilities that could emerge later.
business.gov.au recommends independent financial due diligence across tax, accounting and sales records. This worksheet helps you ask better questions; it does not replace verification of a particular target.
Next: enter an agreed scenario into the acquisition cash-flow tool, and keep the assumptions with the result.
Sources & checking
- business.gov.au: buy an existing business · checked 2026-09-23
ProviderQMS editorial guidance and fictional examples. Source checking is not a professional endorsement. Our editorial method.