Scant accounts

[niallh]

Hi All

I am looking at buying a new business, and the accounts I have been presented are simply 1 sheet of P&L accounts, 1 each for the last 3 years. No balance sheet, capital accounts, depreciation etc etc. The owners of the business say they ahve never had any more from their accountant than that. When the bank asked for signed accounts, they simply sent the same sheets through signed!

Now this is a business turning over £1.3million pa as a sole trader. Should I be suspicious, or do some accountants provide such a limited service. Looking at their expenses of the business they do run a very tight ship!!

Cheers

Niallh

[maths]

Not my scene but as far as i am aware sole traders are not required to keep or file B/S and P & Ls like a company needs to do.

For tax purposes it's sufficient to simply keep good records.

Presumably it's up to the sole trader to decide the degree to which he wants any detailed accounts prepared.

[King_Maker]

For that size of turnover, HMRC would normally require a Balance Sheet and P&L account completed on the relevant supplementary pages.

".....the owners of the business..." indicates a Partnership?

I would want audited accounts, depending on the purchase price.

[Incredulum]

It depends, of course, on what you are buying and what you are planning to do with it as to the level of audit required.

If it has large amounts of stock, plant etc. etc. then I'd be wanting a full financial due diligence complete with fair values (rather than book).

If it is essentially a mailing list, broadly speaking a promise of future turnover, then I'd instead be looking at restraint of trade clauses imposed on the vendors and the quality of the customers.

[niallh]

Thanks everyone.

It's a primary care healthcare provider, long established (over 40years), retiring husband and wife, with a substantial frehold - asking price in total £2m. There are happy for my accountant to talk their accountant, so would my accountant be the one to audit the accounts? All in all I think they're completely ethical and above board, but at their profits are exceptionally good (even through the recession), so I don't want to take any chances!!

Niallh

[pqtaxation]

... There are happy for my accountant to talk their accountant, so would my accountant be the one to audit the accounts? All in all I think they're completely ethical and above board, but at their profits are exceptionally good (even through the recession), so I don't want to take any chances!!

Unlike maths, who seems to know the location of every scintilla within most pieces of tax legislation, the art of buying and selling businesses has been my scene for many years – my interest in (particularly inheritance) tax is in part engendered by my trying to retain for my family the gains that have resulted previously from such activity on my moving into semi- retirement (i.e. only doing the work that I choose to do and on my terms for doing it) and then death.

A “primary health provider” at £2m sounds like a care/nursing home.

That sector is struggling at the moment because so many residents are public sector funded (at least partially) as you will know. I’d be wary of your summary of your vendor enjoying exceptionally good profits currently unless you (incorrectly in my view) exclude the opportunity cost of owning the freehold property. Presumably that property accounts for much of the asking price.

Put simply, there are no concrete rules and the scope of information provided by a vendor at their cost is part of the negotiation process. The outcome of that process often just reflects the respective negotiating position of the parties. That is, a desperate seller will be prepared to offer concessions, which include providing audited financial statements, whereas a seller just testing the possible market wil loffer fewer concessions. If you insist on such statements and get them it may just reflect that relative negotiating position but remember an auditor has to rely on information provided by such a client who is the only person to whom they owe a duty of care. You can ask for your choice of auditors at your cost to carry out an audit/due diligence but again the other party’s agreement may just reflect relative negotiating positions and your auditors will rely on the information provided to them.

The requirements that the tax authorities (HMRC in UK) have of a seller for record keeping and preparation of financial statements may help establish a minimum for information disclosure but rarely is it a maximum in negotiating the sale of a business. You’d certainly be wise to insist on a non-compete by the vendors which in the circumstances of a retirement sale after 40 years they can hardly refuse to do. TUPE will of course apply so staff employment contracts do need to be checked carefully.