difference in accounts info from business owner and his accountant

[locasan]

Hello all,
hope you can help clarify something for me.

we are in the process of buying a business, we have made our offer (which was accepted) based upon accounts figures given to us by the seller, we have received the most recent accounts from his accountant this morning and they are nothing like the figures given to us by the current owner / seller! On the accounts he provided us with, the company was showing a healthy turnover and profit, but on the accountants version, the turnover is much less and he is showing a loss?!?!?!?
does this mean that the business seller has been lying to us, or is making up his accounts - or has he got a clever accountant??
we have never bought a business before and are confused now, thinking of withdrawing our offer as theres no pont buying a business that loses money!

Thanks in advance

[David Griffiths]

It's pretty well impossible to answer that without seeing the two sets of figures. It would only be by comparing the two sets that anybody could decide what queries to pursue.

Does one show VAT inclusive turnover and the other VAT exclusive? What costs are in the one and not in the other?

There may be genuine reasons for the differences or the vendor may have given you incorrect figures.

You really should get the figures looked at by an accountant

[Anna Chandley]

Have you appointed your own accountant to look at the accounts and carry out any due diligence? This is normal procedure when buying a business.

It's possible that the business owner gave you his management accounts without realising the effect of year end adjustments made by the accountant in his year end accounts. Its also possible that he deliberatly inflated profit and turnover.

[locasan]

wow talk about speedy responses, thanks guys n gals!

ok so to try and clarify a little.
the business is a coffee shop, operating as a sole trader.

on the sellers accounts his
turnover was £80,000
VAT £4000
Purchases £7,500
GP - £68,500
operating costs - £38,000
net approx = £30,000

but his accountants version
turnover - £57,000
no VAT
purchases - £20,000
operating costs - £44,000
loss - £7,500

now this is a cash rich business, dont know if that has anything to do with the difference in turnover, but there are obviously expenses being put throught the business in an effort to not pay VAT. should we be alarmed by this? i have spoken to the seller again today, who is a really nice guy and has been really upfront and open about everything to do with the business. and he just said that there have been adjustments done by his accountant so that he doesnt have to pay any tax, and there have been expenses put through the business that he never accounted for in his own paperwork.

again a huge thanks in advance

[David Griffiths]

The figures are poles apart. VAT of £4000 on £80k turnover for a coffee shop doesn't stack up, but neither do purchases of £20k on turnover of £57k

They can't both be right. If he's claiming that one set has been fiddled to save tax then run a mile. If they are prepared to lie to defraud the taxman then what's the chances of them lying to rip you off as well.

You really need to get the figures looked at by an accountant - not just the accounts but underlying records such as copy VAT returns