Before you make an offer, the broker usually gives you only the information memorandum (IM). Enter its figures below. Upload it or type its figures in. The app checks the sums, compares every running cost with what a business like this normally spends, and shows what the profit really looks like once missing or understated costs are put back. It has built-in cost lists for service stations and liquor stores, and Ledger Lens can suggest one for any other business.
New to this? The IM is a sales document written for the seller. A common trick is to leave out or shrink costs a new owner can't avoid, like the POS and back-office software, card fees, repairs, licences and compliance checks, or to leave out the hours the owners work for nothing. Every $1 of cost left out makes the profit look $1 bigger and the price about $3 bigger.
Upload the IM the broker sent you. You get a short, plain answer: what it really makes and what to pay.
Staff cost is worked out from a roster: hours open × staff on shift × 365 days, less the hours you'll work yourself. If the sellers work 60 hours a week for nothing, the IM's wage bill looks low. You'll either work those hours yourself or pay someone else to.
Typical figures are rough starting estimates, not quotes. Where a figure comes from a published source the note says so. Replace any of them with a real quote or your own knowledge. Put 0 in the IM column where the IM shows nothing.
Stage 2. Once your offer is accepted subject to due diligence, ask for the full financial statements for three years, the GST returns and the IR4 tax returns. Enter them here and the red flags tab tests them against each other and against the IM.
Type each figure as printed, oldest year on the left. Enter costs, tax and interest as positive numbers and losses as negatives (brackets work too). Leave blank anything the accounts don't show. Most small NZ companies don't publish their accounts and prepare them only for IRD, so ask the seller for the full annual financial statements, the IR4 tax returns, the GST returns and the latest management accounts. The GST and IR4 lines let the app test the accounts against what was told to IRD.
Copy a block from Excel or Google Sheets: first column the line item name, then one column per year (oldest first). The first row should hold the year labels. Names are matched to the lines above, so "Turnover", "Debtors" or "Cash at bank" all work.
These tests point to where to dig. A flag is a question to put to the seller and their accountant, not proof of fraud. Ratio models such as the Beneish M-score were built on large listed companies and are indicative only for owner-operated businesses.
Start from reported EBITDA (operating profit plus depreciation and amortisation), then strip out anything a new owner would not see. Owner-operators often take little or no wages and pay themselves through year-end shareholder salaries or dividends, so a buyer must charge a market salary for running the business. Positive adjustments add to earnings, negative ones reduce them.
Three methods, each from the normalised figures. Enterprise value is the value of the business before debt; equity value is what the shares are worth after paying off bank debt and debt-like items and adding cash. The risk discount comes from the red flags and you can override it.
In genuine business transactions the first digit is 1 about 30% of the time and 9 under 5% of the time. Invented or manipulated figures tend to break this pattern. Paste at least 100 amounts from the sales ledger, purchase ledger, expenses or bank statement (an export from Xero or MYOB works), one per line or in a column from a spreadsheet.
Upload the IM the broker sent you and get a plain answer: what the business really makes and what to pay. Free accounts include 3 IM checks a month.
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