Florida Acquisition Due Diligence: 10 Numbers to Review

A profitable-looking business can leave you short of cash after closing. Business acquisition due diligence helps you test whether the seller's numbers support the price and your operating plan.

For a Florida buyer, that means checking source records , adjusting reported earnings, and identifying tax and property costs. Benchmarks vary by industry and deal structure, so a single ratio can't establish whether an acquisition makes sense.

Start with reliable records, then review these ten numbers before committing to the purchase.

Build a Financial Record You Can Verify

Request three years of financial statements and tax returns, plus monthly reports for the current year. Also obtain bank statements, payroll filings, sales tax returns, customer invoices, vendor bills, and debt agreements.

Compare the same periods across documents. Tax returns and financial statements can differ because of accounting methods or tax adjustments. However, every material difference needs an explanation and supporting records.

The IRS's small business tax guide covers accounting methods and recordkeeping requirements. For the bookkeeping foundation, reviewing general ledger records helps you trace balances to individual transactions.

Have a qualified accountant reconcile the records before calculating ratios. An attorney should review ownership, contracts, liens, and potential liabilities.

For larger or more complicated purchases, consider a quality-of-earnings review. That work tests the sustainability of reported earnings, beyond whether the books balance.

Revenue Quality: Growth and Customer Dependence

1. Monthly Revenue and Year-Over-Year Growth

Review monthly revenue, the trailing 12-month total, and comparable prior-year periods. Calculate growth as the change in revenue divided by prior-period revenue.

Then separate recurring business from unusual projects, refunds, and discounts. Revenue growth driven by one unusually large contract deserves different treatment than repeat customer purchases.

Southwest Florida businesses may experience seasonal demand, so compare matching months rather than relying on consecutive-month growth. Also check whether hurricane closures or recovery work distorted particular periods.

Verify sales against invoices, point-of-sale reports, contracts, and deposits. Remember that deposits can include loans or owner contributions. Meanwhile, legitimate credit sales may not have reached the bank yet.

2. Revenue Concentration by Customer

Calculate each major customer's share of total revenue. Also review the combined share attributable to the largest customers.

There isn't one acceptable concentration percentage for every business. A subcontractor serving a few major builders has different risks than a retailer serving thousands of shoppers.

However, concentrated revenue deserves close contract review. Confirm renewal dates, termination rights, pricing terms, and whether the agreement transfers to a new owner.

Look beyond customer names. Multiple accounts may belong to the same corporate group, which increases effective concentration.

Ask who owns each relationship. If customers primarily work with the seller personally, your transition plan should address introductions and retention.

Profitability: Margins and Normalized Earnings

3. Gross Profit Margin

Calculate gross profit margin as revenue minus cost of goods sold, divided by revenue. Use consistent cost classifications across periods.

For a retailer, examine purchasing costs and inventory adjustments. For a service company, determine whether direct labor, subcontractors, and materials belong in direct costs.

Then compare margins by product, service, or location. A blended margin can hide declining profitability in the business's largest revenue category.

Verify supplier invoices, labor allocations, discounts, and returns. Also check whether vendor price increases have reached customer pricing.

Compare the business with similar operations, but avoid treating industry averages as automatic purchase criteria. Product mix and accounting classifications can explain substantial differences.

4. Normalized SDE or EBITDA

Choose the earnings measure that fits the acquisition. Seller's discretionary earnings (SDE) commonly applies to owner-operated businesses. EBITDA may better fit businesses with established management.

Recalculate seller-provided earnings using documented adjustments. Personal expenses and genuinely nonrecurring costs may qualify, but recurring repairs and necessary staffing generally remain operating expenses.

Also include realistic replacement compensation for work the seller performs. Family members working below market pay can create another adjustment.

Ask your accountant to prepare an adjustment schedule linking every change to records. Unsupported add-backs can inflate both earnings and the asking price.

Cash Availability: Operating Flow and Working Capital

5. Operating Cash Flow

Review cash generated by operations alongside reported profit. Receivables, inventory purchases, and unpaid bills can create large differences between them.

Reconcile bank activity and separate loan proceeds, owner contributions, and asset-sale proceeds from operating cash. Also distinguish loan principal payments from interest expense.

Then evaluate the cash available after necessary equipment purchases and anticipated debt payments. Operating cash flow alone doesn't capture every demand on the buyer's funds.

Monthly financial statement preparation supports comparisons among income statements, balance sheets, and cash flow reports.

Look for patterns across periods. Rising profit accompanied by falling cash may reflect slower collections, expanding inventory, or expenses deferred beyond the reporting date.

6. Normalized Working Capital

Determine how much operating working capital the business needs to function normally. A transaction definition often includes receivables and inventory, less accounts payable and certain accrued operating liabilities.

However, the purchase agreement must define included accounts and exclusions. Cash, debt, taxes, and customer deposits require deliberate treatment.

Calculate monthly balances across a representative period. A single year-end figure can miss seasonal needs or unusually delayed vendor payments.

For a deal with a working-capital adjustment, establish the target before closing. Also agree on accounting methods and procedures for resolving disputes.

Confirm whether the seller will leave enough operating resources behind. A cash-free, debt-free purchase price doesn't automatically provide the cash needed for payroll or inventory.

Asset Quality: Receivables and Inventory

7. Collectible Accounts Receivable

Review receivables aging, including current, 30-day, 60-day, and 90-day balances. The important number is the amount you can reasonably collect.

Check subsequent payments, customer disputes, credits, and collection history. Large old balances may need reserves or exclusion from the transaction.

Also examine invoices issued near reporting dates. Confirm that the business completed the work or delivered the goods under its revenue recognition policy.

Retainage, unbilled work, and contract assets deserve separate attention in construction-related acquisitions.

Weak bookkeeping internal controls can allow duplicate invoices, missed credits, or misapplied payments. Resolve those errors before using the receivables balance in negotiations or a working-capital target.

8. Usable Inventory Value

Confirm quantities through a physical count, then assess condition and salability. Inventory listed at cost may include obsolete products or damaged stock.

Review purchase invoices, inventory valuation reports, and sales by item. Slow-moving goods may require markdowns that reduce expected margins.

Also distinguish inventory owned by the business from consigned goods or customer-owned materials. Count procedures should address goods in transit and items stored elsewhere.

Keep tax basis separate from market value. The IRS's guidance on asset basis explains the rules used to determine basis for tax purposes.

Agree on valuation methods and exclusions before closing. Otherwise, the buyer and seller may assign different values to the same stock.

Obligations: Debt Payments and Tax Exposure

9. Required Debt and Lease Payments

Calculate scheduled principal, interest, lease payments, and other fixed contractual payments. Review both annual totals and monthly timing.

Obtain lender statements and payoff letters rather than relying on balance-sheet totals. Also identify liens, personal guarantees, equipment financing, and early termination charges.

For an asset purchase, confirm which obligations the buyer assumes and which the seller must satisfy. In an equity purchase, liabilities generally remain with the acquired entity unless addressed.

Commercial leases deserve separate review. Ask counsel about assignment consent, renewal options, rent escalations, and landlord charges.

Finally, model your acquisition financing alongside existing obligations. Use lender-defined debt service calculations because coverage requirements depend on the financing arrangement.

10. Unpaid Taxes and Potential Assessments

Reconcile tax liability accounts to filed returns, payments, and agency notices. Cover federal payroll taxes, Florida sales and use tax, reemployment tax, and applicable income taxes.

Sales tax collected from customers is a liability, not revenue. Also inspect untaxed equipment and supply purchases for possible use tax gaps.

Florida's general state sales tax rate is 6%, with applicable county surtax and transaction-specific rules. Mixed taxable and exempt invoices need supporting documentation.

Use a Florida sales tax audit checklist to organize reconciliations and exemption records.

Ask counsel about potential successor tax liability and protective procedures. If the seller closes its business, the IRS's closing-business requirements address final filings and deposits. Closing an account doesn't erase unpaid obligations.

Florida Property and Insurance Costs Need Fresh Estimates

Seller expenses may understate your future occupancy and insurance costs. Obtain buyer-specific quotes before relying on historical earnings.

For property included in the purchase, review property tax bills, assessments, flood exposure, inspection reports, and deferred repairs. Ask whether the acquisition changes assessed value or available exemptions.

Insurance review should cover windstorm and flood coverage, exclusions, deductibles, claims history, and business interruption terms. Flood coverage may require a separate policy.

For leased premises, check who pays building insurance, maintenance, and storm-related deductibles.

Florida repealed sales tax on standard commercial real property rentals effective October 1, 2025. However, older rental periods and separately taxable categories, such as parking or storage, still require review. Normalize rent expenses using the actual lease and applicable periods.

Connect the Numbers to the Purchase Agreement

Business acquisition due diligence should influence the agreement, not remain in a spreadsheet. Translate verified findings into pricing, working-capital adjustments, seller obligations, or contractual protections.

Ask your attorney whether escrow, holdbacks, indemnities, or closing conditions fit the identified risks. Their usefulness depends on the transaction and enforceability.

Deal structure also changes tax outcomes. The IRS's guidance on business sales explains that a business sale generally involves multiple assets rather than one asset.

For applicable asset acquisitions, buyer and seller generally report the allocation using Form 8594. Have qualified tax and legal professionals review the allocation, entity structure, and reporting requirements before signing. An agreed price can produce different after-tax outcomes.

Conclusion: Buy Based on Verified Economics

The strongest acquisition analysis connects reported earnings with collectible assets, operating cash needs, and documented obligations. Verified numbers provide a sounder negotiating basis than seller summaries or broad industry benchmarks.

Before committing, have qualified accounting and legal professionals review the records and deal terms. A business that looks profitable should also support the cash demands and responsibilities you'll inherit.