How alerting is it to have an owner who does not have a cash flow statement

searcher profile

October 10, 2020

by a searcher in Florida, USA

The owner has a balance sheet and P&L but no Statement of Cash Flows. Is this a deal killer for others?

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commentor profile
Reply by a searcher
from University of Pennsylvania in Boston, MA, USA
I have worked for a very successful small business owner, who despite being very well educated and with multiple decades of experience in the business had never heard of the three financial statements. So, if your question is whether this is a sign the owner is actively hiding something from you, then the answer is probably no. They simply use the PnL statement as approximation. But if your question is can you get an accurate picture of where the cashflow is coming from, then the answer is again no (at least in that case). The only way to begin to understand was to start working with the owner. Reconstruction of statements and professional due diligence would provide better numbers but still would not provide an accurate picture.
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Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
In my 35 years as M&A Intermediary representing buyers and sellers (for deals valued between $1 M to $100 M) I have seen few thousand financial statements. Very rarely I see cash flow statement. And, even when the seller has it, I rarely look at it, and more or less never use it. I focus on the source of "new" cash (the income statement) and the consumption of cash by the business and the current owner (the balance sheet). CF statement is DERIVED from IS and BS. anyway. Having IS and BS, and that too monthly, is a luxury in the LLM segment. Instead of CF statement, I develop "EBITDA Flow" Statement.
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