Quick Snapshot
Reported earnings need supporting records, and the timing of customer payments affects the cash available to run the business. The work you’ll inherit and the assets and obligations that transfer also shape what you’ll need during your first months of ownership. Those findings should inform your operating budget and negotiated purchase terms.
Connect the Earnings to Supporting Records
An income statement summarizes revenue and expenses over a reporting period. Looking beyond the income statement is how a buyer learns how those results were produced and what it would take to keep producing them under new ownership.
Start by laying the historical statements next to the tax returns, then bring in the current year-to-date results. Ask your accountant to help explain any differences and look into significant changes in revenue or expenses. If the seller presents adjusted earnings, ask for a schedule that shows each adjustment and the records behind it.
Seller's discretionary earnings can be a useful starting point for an owner-operated business. Keep that supported calculation separate from a budget for how you plan to run the company. If you intend to hire someone to handle the seller's management duties, put that cost in your budget, then work through the other cash demands the business will have to meet.
Follow Sales Through to Payment
Ask your accountant to help you pick sales from different months and trace each one through the records. For an invoiced sale, look at when the work was finished, when the invoice went out, and when the payment arrived. Then compare that collection pattern with when payroll and supplier bills come due.
Read the balance sheet and cash flow information alongside the income statement. Review reported profit together with cash collections and payments so your acquisition budget reflects when funds will be available and when bills come due.
If demand varies by season, compare monthly collections and expenses across the full year. A Florida business serving visitors or seasonal residents may have quieter periods to fund, so ask how the company covers them and what resources you'd need if you took over at that point in its cycle.
Walk Through the Work You Would Inherit
Ask the seller to describe a recent operating week, including any decisions that still depend on the owner. Which customer issues reached the seller? What needed their approval? Compare those answers with the responsibilities assigned to employees.
An agreed operating walkthrough lets you see how the work actually gets done. Coordinate access through the seller and the broker, and take appropriate care with employee and customer confidentiality. Use the walkthrough to sort out which responsibilities you'd take on yourself and which would call for training or another hire.
Longtime employees may provide valuable continuity. Ask how their responsibilities are documented and how another person would learn the essential tasks. Any training or staffing costs you identify belong in the same budget you're using to evaluate the earnings.
Establish What Transfers and What You Must Fund
Work with your attorney to establish which assets and obligations are part of the proposed transaction. Clarify how cash, receivables, inventory, and outstanding bills are treated so your operating plan reflects the resources you'll actually receive.
Review the lease and other material agreements for required approvals and for the terms that would apply after closing. Get insurance quotes based on your proposed ownership arrangement. If the business is regulated, confirm with the relevant authority and your advisers which licenses or qualifications are needed to operate after the transfer.
Use those answers to estimate the cash you'll need in the first months. Include ordinary operating bills, any deposits or transition expenses, and acquisition debt payments if you're financing the purchase. Then compare the timing of those payments with expected collections and the funds you'll have available.
Carry the Findings Into Your Purchase Terms
Keep a short record of each material finding that notes its supporting evidence and the action it requires. A payroll adjustment belongs in the operating budget. A lease approval contingency or a defined seller-training period may belong in the purchase agreement, subject to negotiation and your attorney's review.
What you learn early can shape your initial offer and the questions you take into due diligence. Use the agreed review period to investigate those questions, and work through any material findings with your advisers before moving toward closing.
Build a Decision You Can Explain
Looking beyond the income statement means connecting the business's reported performance to the resources and responsibilities you'd take on. By the end of your review, you should be able to explain the earnings you've supported and the cash your plan requires, along with the work you expect to perform.
If you're evaluating a Florida acquisition, Green & Co. Business Brokers can help you organize practical questions and work through what the answers mean for the opportunity. Contact our team to discuss the business you're considering and the next steps in your review.