When buying or selling a commercial HVAC business, financial due diligence is essential to avoid costly surprises. One of the first red flags to examine is revenue consistency—steady or growing revenue suggests a healthy business, while sudden drops or irregular spikes may indicate deeper issues. Discrepancies in accounts receivable and payable are also critical; overdue invoices or mounting debts can signal poor cash flow management. Another common concern is unrecorded or inconsistent expenses, especially when personal costs are hidden within business accounts, which skews true profitability and complicates valuation. A heavy reliance on a small group of clients is another warning sign, as losing one major customer post-sale could seriously impact income. Additionally, buyers should inspect payroll records for fairness and accuracy—unusually high salaries for owners or family members could indicate financial manipulation. Misleading inventory and equipment valuations are also common; overstated asset values or outdated inventory records can distort the business’s true worth. Finally, undisclosed debts or pending legal liabilities can derail a sale entirely. Whether you’re preparing to sell or considering a purchase, these financial warning signs must be carefully reviewed to ensure transparency, protect your investment, and support a fair, informed transaction.
source: https://businessmodificationgroup.com/7-red-flags-in-an-hvac-businesss-financial-records/
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