How to buy a business in the UK: the financial checks

The short answer. Before you buy, check that the profit is real and backed by cash, what debts and debt-like items come with the business, what working capital it needs to trade, whether its tax is up to date, and how much it depends on the owner and a few customers. Then decide whether the price still makes sense.

Shares or assets: what you are buying

Buying the shares means buying the company with its history, including any tax, legal or employment liabilities. Buying the assets means choosing what you take, although the staff usually transfer with the business under the TUPE rules. Your solicitor will advise on the structure. The financial checks matter either way.

The financial checks, in order

1. Start with the public record

It is free. At Companies House, look at the filed accounts, the filing history, the officers and the charges register, which shows who has security over the assets. Search The Gazette for winding-up petitions and the Registry Trust register for County Court Judgments. Late filings, new charges and judgments are early warnings.

2. Read three to five years of accounts

Sales, gross margin, overheads, profit, cash, borrowing and net assets. Read the trend, not one year. Many small companies file accounts without a profit and loss account, so ask for the full accounts the directors approved.

3. Test the seller’s adjusted profit

Asking prices usually rest on an adjusted EBITDA. Ask for every adjustment with evidence: one-off costs, the owner’s personal costs and the owner’s pay. Replace the owner’s pay with what it would cost to employ someone to do their job.

4. Check the profit turns into cash

Compare operating profit with the cash the business generated over several years. Profit up and cash down usually means debtors, stock or work in progress are building up.

5. Find the net debt and debt-like items

Bank loans and overdrafts, asset finance and leases, director’s loans, HMRC arrears or a Time to Pay arrangement, deferred income (customers who have paid for work not yet done), dilapidations on leased premises, and unpaid bonuses and holiday pay. These usually come off the price.

6. Work out the normal working capital

A business needs a level of debtors and stock, less creditors, to trade. Agree that normal level in the deal so the seller cannot run the balance sheet down before completion. For a seasonal business, use a monthly average.

7. Check tax and payroll

VAT returns against the sales records, PAYE against the payroll, corporation tax paid on time, and any HMRC enquiries. In a share purchase, these stay with the company you are buying.

8. Look at customers, suppliers and people

The largest customer’s share of sales and the top five’s, the contracts and their notice periods, the key suppliers, who holds the relationships, and the staff and their terms.

9. Check trading since the last accounts

Monthly management accounts to date, against the same months last year. A sale often follows a strong year. You want to know whether it continued.

Red flags

• Management accounts that do not agree with the filed accounts
• Cash falling while profit rises
• Large adjustments to profit with little evidence
• Overdue VAT or PAYE
• One customer with a large share of sales, or an owner who does everything
• A seller who will not share the records

What financial due diligence costs

UK buyer guides put accountant-led due diligence on a small company at roughly £1,500 to £5,000 or more (Buy a Business Ltd, 2026), or £3,000 to £10,000 (NewOwner, 2026), depending on size and scope. My financial due diligence for buyers is a fixed fee, agreed in writing after a short scoping call.

Questions