Robin Lamb | Published 30 January 2023 | Updated 15 September 2026
An acquisition may offer an established customer base, experienced staff or capacity that would take time to build yourself.
Before agreeing to buy, examine what supports that opportunity. What would you acquire, what earnings could reasonably support the asking price, and what would it cost to operate the business under your ownership?
The purpose of financial assessment is to investigate those questions, not to produce a checklist that declares a business safe to buy.
What would you actually purchase?
Clarify whether the proposal involves selected business assets or interests in the entity that operates the business.
In a company share purchase, you acquire shares. The company continues to hold its assets and obligations. In an asset purchase, the agreement identifies the assets and rights being acquired.
These arrangements have different accounting, tax and legal implications. Neither is universally preferable.
Identify the proposed purchaser as well. An acquisition by your existing trading company is a different proposal from one involving another entity.
Ask your advisers to assess what the arrangement means before treating the purchaser’s name or transaction type as a detail to resolve later.
How reliable is the financial information?
Financial statements, current management accounts, tax returns and supporting records provide different parts of the picture.
Annual statements describe a completed period. Management accounts may show more recent trading, but their usefulness depends on how complete and reconciled they are. Tax returns provide another reference point, not proof that the business will earn the same amount for you.
Discuss significant differences between the records and the figures presented in the sale memorandum. Ask what supports reported revenue, margins, customer balances and expenses.
The information required depends on the business and the proposed purchase. Your accountant should identify where further evidence is needed rather than accept a summary presentation as a complete assessment.
The principles behind reliable business records matter particularly when those records support an asking price.
Do the earnings reflect the costs you would face?
The seller’s reported profit may not reflect the cost of operating the business under your ownership.
Examine how the owner and family members are paid, whether related parties provide premises or services, and whether those arrangements would continue.
If the seller presents adjusted earnings, ask for the adjustments to be explained and supported. An expense described as unusual may still recur. Removing owner remuneration from the figures does not remove the work that someone must perform.
Consider whether you would do that work yourself, employ a replacement or distribute it across an existing team. Your time also has an economic cost.
The question is what earnings remain after allowing for the resources your operating plan requires.
How dependent are earnings on customers and the seller?
Understand whether revenue is spread across many customers or concentrated in a small number of relationships.
Look beyond the number of customers. Discuss the revenue and margin associated with key accounts, the nature of their agreements and the seller’s role in maintaining them. Historical repeat business does not guarantee that customers will stay after a sale.
Also establish what the owner actually does. They may handle sales, technical work, scheduling and supplier negotiations without those functions appearing as separate staffing costs.
Consider the replacement labour, training and transition support your plan would require. If you intend to combine the acquisition with an existing business, identify which functions can realistically be absorbed and which still need resources.
What does the price include and exclude?
Clarify the treatment of stock, equipment, goodwill, debtors and cash. Do not assume that everything used in the operation belongs to the seller or forms part of the purchase.
Ask whether stock is included in the advertised price or assessed separately. Equipment condition, ownership and replacement needs also deserve attention.
Discuss existing liabilities and proposed settlement adjustments with your accountant and solicitor. Amounts involving employee entitlements, customer deposits, prepaid expenses or owner balances should not remain unexplained.
An asset purchase should not be assumed to eliminate every exposure to existing obligations. Employee matters and rights affecting assets still need appropriate review.
The objective is to understand both what you receive and what you may need to fund or address after completion.
What funding is needed beyond the price?
Allow for transaction costs, applicable duty, working capital, equipment needs and the period before expected customer receipts arrive.
For example, if existing debtors remain with the seller, discuss how the acquired operation would fund wages and suppliers while generating and collecting new sales.
Business profitability and acquisition affordability are different questions. The purchase may require funds at completion, while operating cash arrives later and borrowing creates additional commitments.
Use forecasts to examine the proposed operating plan and its assumptions. Expected improvements from combining businesses should not be treated as achieved results.
Raise finance preparation early with your accountant and lender or broker. A profitable history does not establish that the proposed funding will be approved or sufficient.
Which accounting and tax questions need attention before signing?
Ask your accountant and solicitor to consider the purchasing entity, price allocation and proposed GST treatment together.
Amounts attributed to stock, equipment, goodwill or other assets can receive different accounting and tax treatment. The purchase price should not be treated as one immediately deductible expense.
Nor should GST free treatment be assumed because an operating business is being sold. Any proposed going concern treatment needs assessment against the transaction and applicable requirements.
Clarify whether GST is included in the price or payable in addition, and how the proposed treatment affects the funds required.
Your solicitor should also review leases, employee matters, licences and the transfer of contractual rights. These can affect the operating assumptions used in the financial assessment.
What to bring to an initial discussion
Bring the sale memorandum, available financial records, draft terms, proposed funding and purchaser structure. Explain how you intend to operate the business and what you expect to change.
Your accountant considers the financial information and tax questions within the agreed scope. Your solicitor addresses legal rights and obligations. A lender or broker addresses finance, with an independent valuer involved where appropriate.
Speak with Jaha about the proposed acquisition before committing, so the accounting and tax questions, information gaps and scope of any further work can be identified.