Key takeaways
Turn important seller claims into specific evidence checks
A claim about repeat customers or sustainable margins needs more than a reassuring explanation from the seller. Identify the records and checks needed to test each important price assumption, prioritising issues that could materially change earnings or risk rather than treating every enquiry equally.
Check when reported sales were actually earned
An invoice date alone does not establish that a sale belongs in the financial period presented. Examine delivery or service dates, later credits and returns, then obtain accounting advice on any correction rather than assuming either that the reported income is valid or that it is fictitious.
Look beyond profit to cash needed for trading
A profitable business can still tie up substantial cash in unpaid customer invoices and slow-moving stock. Review payment histories, inventory movements and supplier payments across comparable periods so an unusually favourable balance-sheet date does not hide the cash required to keep operating.
Avoid deducting the same financial problem twice
A doubtful customer debt may affect the agreed adjustment for operating balances at completion without also requiring an identical reduction in business value. Ask advisers to explain each treatment, distinguishing a specific unpaid amount from evidence of an ongoing collection problem that also affects future earnings.
Separate established findings from questions still awaiting evidence
A confirmed error, an unsupported seller claim and a question blocked by missing records are not the same finding. Record each separately and explain its effect on the valuation, making clear that targeted checks do not establish every account’s accuracy or guarantee a safe purchase.
Prioritise the purchase questions
A buyer-side instruction should identify the claims that materially influence price and the information available to test them. Agree whether the work concerns earnings quality, specific adjustments or a full valuation. Limited access to records may restrict conclusions, so the engagement should not imply a complete investigation simply because the seller has supplied an information memorandum.
Trace claims to supporting records
Request accounts, management results, sales detail, payroll information and evidence for proposed add-backs. The specific procedures must be agreed rather than assumed. Reconciliation can reveal where summaries differ from underlying records, but any reliance on unverified information should remain explicit. Confidentiality restrictions and staged access may also affect what can be concluded before a contractual deadline.
Assess post-completion economics
Consider replacement owner labour, occupancy costs, working capital and investment needed to sustain operations. A seller’s historical profit may not represent the buyer’s ongoing earnings. Separate buyer-specific synergies from the target’s standalone position, and test whether forecasts depend on new customers, capacity expansion or approvals that are not yet supported by the available evidence.
Signed
A clear valuation conclusion starts with an agreed purpose, relevant evidence and disclosed assumptions. The report identifies the interest valued and explains the reasoning behind its conclusion.
Report findings and unresolved matters
A scoped deliverable can link material findings to valuation assumptions and explain how information gaps affect the conclusion. It should distinguish a confirmed adjustment from an issue requiring further investigation. This helps the purchaser and advisers decide which questions remain open before commitment, without presenting the report as an instruction to proceed or abandon the transaction.
Coordinate specialist investigations
Legal title, employment liabilities, tax exposures and operational condition can require separate advisers. This work does not replace their due diligence or warrant the accuracy of every seller representation. If the need is primarily an independent price reference, buying-a-business valuation may be sufficient; broader procedures should be expressly scoped before the acquisition timetable is relied upon.
Turn the valuation thesis into testable claims
Start with the assertions that support the proposed price: recurring customers, sustainable gross margin, recoverable stock or unusually low overheads. Convert each into a question with an evidence request and an agreed procedure. Instead of asking whether revenue is reliable, ask how much reported recurring revenue came from customers who have actually ordered again within the relevant purchasing cycle.
Business Queensland describes due diligence as investigating financial records, contracts, expenses and operations before committing to a purchase. 1 A valuation-focused instruction should prioritise those investigations according to their potential effect on earnings and risk. This differs from deciding an initial bidding ceiling: it tests whether the factual foundations of that ceiling survive examination.
Examine cut-off and the cash conversion story
Select periods where results changed materially, including reporting dates and seasonal peaks. Ask how sales were recognised, whether goods had been delivered or services performed, and whether subsequent credits reversed reported income. Cash receipts can support collection evidence, but they do not by themselves establish that the revenue belongs in the period presented.
Consider a hypothetical supplier that invoices a large order in June, delivers in July and later accepts a substantial return. The investigation should establish the facts and obtain accounting advice on the appropriate treatment, rather than immediately declaring the entire invoice fictitious. Trace any supported correction into the earnings calculation. Where transaction-level access is unavailable, state which conclusions remain conditional instead of treating a plausible explanation as verified evidence.
Challenge cash tied up in the operating cycle
A profitable target may need more cash than its headline earnings suggest. Examine aged receivables, inventory movement and supplier payment patterns across comparable periods. Look for overdue balances repeatedly rolled forward, stock without recent demand, or unusually slow supplier payments that temporarily improve cash. Use underlying schedules rather than relying only on a single balance-sheet date.
Assess how findings affect both maintainable earnings and the completion mechanism. A doubtful receivable may influence a working capital adjustment without justifying a second identical deduction from enterprise value. Conversely, persistent collection problems may reveal an ongoing credit cost as well as a specific balance-sheet issue. Record the reasoning for each treatment so the same exposure is neither ignored nor counted twice when advisers negotiate completion accounts.
Translate findings into specific decision consequences
Maintain a findings table with the seller's claim, evidence reviewed, procedure performed, result and valuation implication. Distinguish a confirmed discrepancy from an unsupported assertion and an unresolved question. These categories should not collapse into a single risk discount. A supported recurring cost may change earnings directly; uncertainty about customer retention may be better presented through scenarios pending further evidence.
The government's acquisition guidance separates valuing a business from conducting due diligence. 2 Bring the two together through an explicit update: show the original assumption, revised assumption and resulting effect, while leaving legal protections to transaction advisers. A price adjustment, additional condition or request for more evidence may address different aspects of the same finding, but none should be presented as automatically sufficient.
Close each material issue with a documented status and an accountable decision-maker. If access restrictions prevent a procedure, explain the consequence for reliance on the valuation rather than silently reducing the investigation. The final output should help the purchaser distinguish what has been established from what is still being assumed. It should not imply that a limited set of targeted checks establishes the accuracy of every account, the absence of hidden liabilities or the safety of the acquisition as a whole. Preserve the supporting schedules so subsequent valuation revisions can be traced to evidence rather than memory.
Scope, fees and timing
See our fixed-fee valuation packages and confirm the scope and fee before commissioning work. Confirm the purpose, intended users, information requirements and inclusions in a written engagement before work begins. Calculated Value and Limited Scope delivery is 5–7 business days from complete financial information and a signed engagement. Full Conclusion timing is confirmed individually in the engagement letter. Specialist requirements or changes to the instruction may affect suitability and timing; confirm these before relying on an external deadline.
Sources and further reading
Frequently asked questions
Which seller claims should buyer due diligence test first?
Start with claims that materially affect price: sustainable profit, major add-backs, revenue concentration and required investment. Identify what evidence is available and which procedures are needed. The agreed scope should prioritise decision-relevant questions rather than imply a complete investigation simply because the seller supplied a large information memorandum or data room.
Can you trace advertised earnings back to supporting records?
That can be included where access and scope permit. Relevant records may include accounts, sales reports, payroll and adjustment schedules. Agree the specific checks before engagement and distinguish reconciled amounts from unverified explanations. Tracing selected inputs improves the evidence available for valuation but does not amount to certifying the accuracy of all seller records.
How are cash sales claims handled when records are incomplete?
Unsupported cash turnover should not be accepted merely because it appears in a sales pitch. Request contemporaneous records and a clear reconciliation to the reported accounts. Missing evidence may limit the earnings assessment. Discuss the wider accounting and tax implications with your adviser rather than treating an informal claim as additional maintainable profit.
Can a recent jump in profit be treated as the new normal?
Only if the available evidence supports its sustainability. Examine the causes, period covered, seasonality and whether costs have been deferred or excluded. A short improvement may warrant a separate scenario rather than replacing the established earnings history. The report should explain uncertainty instead of presenting a recent run rate as a guaranteed ongoing result.
Will the review identify cash needed immediately after completion?
Working capital and necessary investment can be considered where included in the scope. Provide debtor and creditor ageing, inventory information and planned expenditure. The business value and the cash needed to take ownership are different questions. Your accountant should separately model funding needs, settlement adjustments and a buffer for trading after the purchase.
Can you check whether one customer creates too much acquisition risk?
Customer concentration can be assessed as a valuation input using sales history, contract terms and evidence of repeat trade. Losing a major customer may affect earnings and risk, but no single percentage determines the answer. Legal review should separately address contract transfer and termination rights, particularly where the relationship depends heavily on the current owner.
What if key information arrives after the agreed valuation date?
The report date and valuation date are different. Later material may help establish what was known or reasonably foreseeable at the valuation date, but hindsight should not be applied without explanation. If new evidence changes a material assumption, discuss whether further procedures or a revised instruction are needed before relying on the conclusion.
Can confidentiality restrictions prevent a meaningful buyer review?
Yes. Restrictions on customer detail, payroll or contracts may limit the procedures possible before an offer deadline. Agree staged access or suitable confidentiality arrangements through your advisers where practical. The report should identify material gaps and their effect, rather than imply that restricted evidence has been checked simply because access may be available after signing.
Does this service uncover every hidden liability in the target?
No. Valuation-focused due diligence examines the agreed questions and evidence; it is not a guarantee against unknown liabilities. Legal title, employee entitlements, tax exposures and equipment condition may need separate specialists. Your acquisition team should allocate those responsibilities explicitly so important issues do not fall between a valuation instruction and other transaction investigations.
How should I brief you when my offer has a due diligence deadline?
Send the deadline, target details, proposed deal terms, material concerns and an index of accessible records. A Fixed Professional Fee is agreed upfront for defined procedures. Standard delivery is 5–7 business days from complete records and signed engagement. Confirm feasibility before relying on a contractual deadline or waiving a condition. This 5–7 business-day timetable applies to Calculated Value and Limited Scope only; Full Conclusion delivery is confirmed individually in the engagement letter.
A clear, independent view of value — with the evidence behind it.
- Understand the conclusion — and what drives value.
- Gain an independent perspective. Move forward with confidence.
- Benchmark your business against industry performance.
- Identify strengths, risks and opportunities through SWOT analysis.
WHAT YOU GET IN A LIMITED SCOPE VALUATION REPORT
Inside your IBV™ report
Executive Summary
Conclusion of value · Method selected · Valuer qualifications
Detailed Report
Maintainable earnings · Cap rate / multiple · Premise of value
The Evidence Pack
SWOT analysis · Top Performers Report · RAVDA score
APES 225 voluntarily aligned. Report depth and supporting analysis follow your agreed package and engagement scope.
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