I spent 10 years as a CRA auditor. Most people buying a business never look at the numbers that actually matter
I was a CRA auditor for about a decade before I went out on my own, so I've been inside the books of more businesses than I can count at this point. And honestly, the same thing happens over and over when people are buying or investing. They get excited about the revenue, the seller tells them it's a cash cow, everyone shakes hands, and then a few months later, the money isn't showing up the way they were promised.
A couple of things worth checking before you hand anyone a cheque.
First is add-backs. Sellers love to "adjust" their earnings, and a lot of the time, that just means they were running personal stuff through the business. Once you strip that out, the real profit can be way lower than what's on the listing.
Then there's the cash side. A business can look profitable and still be broke if customers pay slowly and the bills come fast. Profit on a statement is not the same as money in the bank, and people mix those two up constantly.
I'd also pull their GST/PST and payroll remittance history early. If they're behind with CRA, you can end up walking into someone else's problem.
And watch out for one giant customer. If 40 percent of the revenue is from one client and that client walks after the sale, you basically bought a different business than the one you were looking at.
Here's the thing, though. I know most people reading this already know they should get the numbers checked. The problem is actually getting it done. Try booking a decent CPA right now. Half of them won't take you unless you're already a year-round client, the other half take three days to email you back, and when you finally do get someone, a proper business evaluation runs you a few thousand dollars and a couple of weeks of back and forth. So people just skip it and go with their gut, which is exactly how you end up overpaying for a business that doesn't cash flow.
I'd rather you not do that. So if you're looking at a deal right now, I do a free 15-minute call to start. You tell me about the deal, I tell you what I'm seeing, what the red flags are, and whether it's even worth digging into further. If it is, I'll walk you through what a full evaluation looks like and what it runs. If it's not, I'll tell you that too.
If that sounds useful, just shoot me a DM and I'll send you the link.
Edit: I am a licensed CPA who owns and operates a licensed CPA firm.