Most deals that go wrong were not bad businesses; they were bought on numbers nobody had tested. These are the five things we look at before a buyer agrees a price.
1. Profit that will repeat
We take out one-off income and costs, owners’ salaries set for tax reasons and anything that ends with the sale, to reach the profit a new owner can expect.
2. Working capital
How much cash the business needs to run from month to month. A seller can make it look lower by collecting early and paying late before completion.
3. Tax still open
In Spain the tax office can review the last four years. We read the returns, the VAT and the payroll for that period and put a figure on any contingency.
4. People and contracts
Employment claims, key staff who could leave, and clients or suppliers whose contracts end with a change of owner.
5. Debt that is not called debt
Unpaid bonuses, deferred taxes, leases and supplier finance all reduce what you should pay for the shares.
The findings go into a short report the buyer can take to the negotiation, with each issue priced.
