Why is financial due diligence important when buying a business?

Financial due diligence checks whether the numbers being presented are accurate, complete, and commercially useful. It helps buyers identify hidden debt, weak cash flow, poor record keeping, questionable add-backs, and risks that could affect valuation or deal structure.

What is a source of funds report in acquisition due diligence?

A source of funds report uses direct bank transaction data to show cash movements, recurring payments, lending, overdraft reliance, seasonality, major customers, and major suppliers. It gives buyers a clearer view of trading reality than accounts alone.

How can director's loans affect a business acquisition?

If a seller owes money back to the company through an overdrawn director's loan account, it can reduce the seller's real proceeds and become a major negotiation point. Buyers need to understand how the loan will be cleared, taxed, or reflected in the sale structure.

Dealmakers Podcast

Financial Due Diligence for Business Acquisitions

Johan Gory explains how buyers can test the numbers, expose hidden debt, challenge add-backs, assess cash flow, and avoid overpaying for a business.

Listen to the Episode

Episode 327 | Runtime: 41:20 | Audio Episode

Listen to the Episode

Hear Johan Gory's financial due diligence masterclass for acquisition entrepreneurs who want to buy businesses with stronger control over risk, valuation, and cash flow.

Episode

327

Runtime

41:20

Topic

Financial due diligence

Format

Expert acquisition masterclass

Key Takeaways

Three practical due diligence lessons for buyers assessing a business before completion.

Accounts Tell a Story, Bank Data Shows Reality

Statutory accounts can be shaped by tax planning, timing, and presentation. Cash flow data, bank transactions, and source of funds analysis reveal whether the business can actually support the deal.

Add-Backs Need Commercial Challenge

Company cars, family salaries, owner drawings, goodwill, and discretionary costs must be tested against what the buyer will need to pay after completion.

Director's Loans Can Change the Negotiation

Overdrawn director's loan accounts, cash held in the business, overdrafts, and hidden lending can affect valuation, deferred consideration, and the seller's real proceeds.

Episode Breakdown

This episode is a detailed financial due diligence masterclass with Johan Gory, managing director of OnPoint Accounting. Johan explains why buyers should involve a due diligence expert before committing to a business acquisition, and why skipping proper financial checks can lead to insolvency, unexpected debt, weak cash flow, and expensive post completion problems.

The discussion covers the specific areas that buyers must challenge before agreeing a valuation, including add-backs, goodwill, director's loans, owner compensation, family salaries, bank balances, overdrafts, and distorted year end snapshots. Johan explains how sellers and accountants can present a version of the business that looks attractive, while the underlying cash movements tell a different story.

A major part of the episode focuses on source of funds reporting and why bank transaction data can be more reliable than management accounts or PDF statements. Johan also covers distressed business acquisitions, networking with accountants and insolvency practitioners for off-market opportunities, and how commercial due diligence supports the financial and legal picture before a buyer proceeds.

Best For

First time buyers preparing to review acquisition accounts.
Acquisition entrepreneurs negotiating valuations and deferred consideration.
Buyers assessing distressed businesses and turnaround opportunities.
Dealmakers challenging add-backs, goodwill, and director's loans.
Operators who want to avoid overpaying for weak cash flow.

Questions Answered In This Episode

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