How can I tell if a seller's reported cash sales are actually real?
Cash-heavy businesses are the hardest to verify, and a seller motivated to show strong numbers has an obvious incentive to inflate them. There's no single shortcut that proves cash revenue is real — you build confidence by cross-checking independent sources against each other instead of trusting the point-of-sale summary alone: bank deposit records against reported daily sales, supplier purchase volumes against claimed output, point-of-sale system logs against the general ledger, and payroll hours against the volume of business supposedly being done.
Large, unexplained gaps between what a seller reports and what the underlying paper trail supports are a warning sign whether or not anything improper turns out to be going on. Because this kind of discrepancy is genuinely hard to catch from outside, a business purchase and sale agreement should make the deal conditional on satisfactory financial due diligence, with your accountant doing the reconciliation work before you're contractually committed to a price built on numbers you haven't verified.
A Treadstone business lawyer can help build those diligence conditions into your offer so you're not locked in before the numbers check out.
Key takeaways
- Cross-check bank deposits, supplier volumes, and POS logs against reported cash sales rather than trusting one source.
- Unexplained gaps between reported revenue and the paper trail are a red flag on their own.
- Have your accountant do the reconciliation work, not just your lawyer.
- Make the offer conditional on satisfactory financial due diligence before you're locked in.