Don't pay for revenue you can't prove

A café sale is priced on profit, and profit starts with revenue. If the revenue figure is wrong, the rent percentage, the wages percentage and the multiple are all wrong with it.

So before I look at anything else in a listing, I want to know one thing: can the seller prove the revenue?

Three sources that should agree

Revenue shows up in three places, and in a healthy business they tell the same story.

1. The POS. Sales reports by day and month, split by payment type.
2. The bank. Card settlements, cash deposits and any delivery-app payouts, month by month.
3. The BAS. The seller's tax reporting for the same months.

Ask for twelve months of POS reports next to twelve months of bank statements. Lay them side by side. Where they match, you have something to stand on. Where they don't, ask why.

The scorecard treats a gap of more than about 2% between POS and bank as a red flag. That is deliberately tight, because explainable differences are small.

Differences that are normal

Not every gap is a problem. Expect some noise from:

• Settlement timing. Card sales on the last day of the month often land in the next month's bank statement.
• Fees and commissions. Card processors and delivery apps pay out net of fees, so the bank figure is slightly lower than gross sales.
• Refunds and voids. These appear in the POS but may net off differently in the bank.

A good seller can walk you through these. A seller who can't explain a gap, or who changes the explanation when you ask twice, has told you something.

Cash is the question

Cash is where the story usually bends. If a meaningful share of takings is cash, ask:

• Is every cash sale rung through the POS?
• Are cash takings banked in full, and how often?
• Are any wages or supplier payments made out of the till?

Sometimes a seller will tell you the business really makes more than the books show. Take that seriously as information about the seller, and not at all as information about the business. You can't get a loan against it, you can't prove it to a landlord, and you can't be sure it will be there once you own the till. You are buying the proven number.

A second check: customers times spend

Even if the POS and bank agree, I like a sanity check from the other direction. Take the POS transaction count and average ticket for a typical week.

For example, 180 transactions a day at a $14 average ticket is $2,520 a day. Over about 310 trading days that is roughly $780,000. If the listing claims $950,000, something is off: the count, the ticket size, the trading days or the revenue.

That is what the scorecard's covers check does. It flags a gap of more than 10% between what the customer numbers imply and what the seller claims.

Ask for daily transaction counts and average ticket from the POS for a typical week and for the busiest week of the year. The busiest week shows the seller's best case, and the typical week is closer to what you will live with.

What to ask the seller

• Show me 12 months of POS reports next to the bank statements, month by month. Where do they differ, and why?
• What share of sales is cash, and where does it get banked?
• Can I see daily transaction counts and average ticket for a typical week and for the busiest week?
• Do the BAS figures match the POS for the same months?

If the revenue can't be verified, you don't have a price to negotiate. You have a story.