Provenance DiligenceReality Check · illustrative sample
Reality Check
Illustrative sample
Illustrative sample. The figures below are worked examples so the €950 format can be shown end-to-end — in a client report, figures are transcribed or arithmetically recast from documents supplied by you or the seller; I do not certify that those documents are complete or correct. The tier gate is unchanged: with no seller documents, the order is delivered as a €550 Screen + Document Request Pack. Spain & Portugal: the discipline is the same in both jurisdictions — every figure tied to a named document, every gap named. The sources and documents themselves are jurisdiction-specific (IVA↔IVA/IES, AEAT↔AT, TGSS↔Segurança Social), and what public records can confirm differs by layer and by country — so each report states exactly which sources were checked for that jurisdiction, and which were not available. See the published Portuguese practice memo →
What I am accountable for
- Searching every public source this tier covers — competently, and honestly reported
- Testing the documents you obtained against each other, and showing every step of the arithmetic
- Every figure traced to the document it came from, with the date it was retrieved
- Printing "not retrieved" where a source did not answer — never a guess in its place
What no desk report can be accountable for
- Whether the seller's documents are genuine — I test them for consistency, I cannot authenticate them
- How the business performs once you own it
- What only an on-site visit, or your lawyer, can establish
- Your decision to buy, and the price you agree
I stand behind the search, the documents I was given, the arithmetic and the checklist. The seller's honesty, the future of the business and the decision are not mine to carry — which is exactly why this memo names what to demand, and from whom, before your money moves.
The Screen layer, re-confirmed
Scope of this Reality Check
The full €550 Screen (public records) plus Block 2 — the seller's real documents, reconstructed into a usable cash-flow picture and tested against the observable world.
Public records — registry, insolvency, licence, activity signals
Seller's documents — accounts, bank statements, till data, lease (this is Block 2, below)
Only your lawyer can reach — the blind spots named on page 2
Where the risk sits
Same read-by-area as the Screen. Green does not mean "safe" — it means nothing surfaced.
| Registry & insolvency | Nothing in public records |
| Activity licence | On record |
| Declared earnings vs papers | See Block 2 below |
| Lease terms | Flag — see stress test |
| Real owners of the business | Can't see from a desk |
| Court cases in progress | Can't see from a desk |
Green no public warning sign — not "safe" · Amber resolved only by Block 2 or a named action · Hollow your lawyer runs it.
Block 2 · Illustrative owner-benefit recast from seller-provided figures
What the papers actually say, once the adjustments are named
Every line below is an adjustment to the seller's declared result — the SDE method (seller's discretionary earnings) used in buy-side quality-of-earnings work, scaled to a small-business deal:
Owner's real annual cash flow = declared result ± owner-salary normalisation + one-off items + personal costs on the books − rent-to-contract correction − under-market wage correction. Each adjustment is named and sourced to a specific document page in the real deliverable; here, only the structure and the line-item names are shown.
This is not bookkeeping, accountancy, audit, assurance, tax certification, or verification of the seller's accounts. It is a buyer-side arithmetic recast of documents supplied, for discussion with qualified advisers.
Declared net profit (as filed)from the filed accounts / tax declaration, not an internal draft
€18,000+ Owner's salary normalisationnormalised to a market-rate manager wage
€14,000+ One-off repair (non-recurring)a cost that won't repeat for a new owner
€3,500+ Owner's personal costs on the booksexpenses tied to the seller's household, not the business
€4,200− Rent to market-rateadjusted to the actual lease contract rate, not a favourable side deal
Not used in this example− Under-market wages tied to the sellerstaff paid below market who may leave, or renegotiate, once the seller does
Not used in this exampleOwner's real annual cash flowsum of the lines above ≈ €39,700, rounded
SDE ≈ €40,000Illustrative sample · worked example figures · not advice · not a template
Provenance Diligence · Illustrative sample
Provenance DiligenceReality Check · illustrative sample
Block 2 · Deal Economics
Cash-consistency review
Does the declared number match the observable world?
1 · Tax-declared vs claimed revenue
Compares what the seller told the tax office (IVA/IES declarations) against what the seller is telling you the business earns. A material gap between the two is the single biggest tell in a cash-led business.
Finding: declared €148,000 vs seller's claimed €210,000 — gap €62,000; the filed numbers supplied for this sample do not support the higher stated revenue figure.
2 · Bank inflows vs declared takings
Twelve to twenty-four months of business bank statements, checked against the declared turnover for the same period — do the deposits support the number on the page, or fall short of it?
Finding: bank + card inflows €132,000 vs declared €148,000 — ≈€16,000 (≈11%) not matched to the bank/card records supplied; a cash-handling question to put to the accountant, not an accusation of intent.
3 · Capacity × hours × ticket vs claimed revenue
The physical-capacity model: ceiling = capacity units (seats / stations / chairs) × rotations per day × average ticket × trading days, tested at a realistic 55–70% utilisation. This check is a plausibility pressure test with stated, attackable inputs — it is excluded from the earnings reconstruction above, which uses documents only. If the claimed revenue sits above the realistic band, the gap is stated in € and becomes a negotiation lever — the number must be documented, not asserted.
Finding: declared €148,000 sits inside the €128,000–163,000 capacity band — internally consistent.
Where a cash-led business shows two conflicting sets of numbers (one for the tax office, a higher one quoted verbally to a buyer), that is a dual-fraud warning, not a bonus: the higher number was never declared, taxed, or provable — and it cannot be relied on for a purchase decision.
Arithmetic payback screen
Dividing the stated asking price by the illustrative SDE produces a simple payback screen of ≈2.1 years before financing, tax, capex, working capital, and owner risk.
This is a payback screen, not a valuation and not a price; only you and your advisers set the price. How the payback screen is computed: reconstructed owner's cash flow (Block 2 total) set against the asking price to answer one narrow buyer-side question — how many years of documented cash flow does it take to get your money back, and is that pacing tolerable to you? No discount rate, no multiples, no goodwill maths. It is arithmetic on the seller's own documents and your own constraints. It says where the seller's disclosed earnings stop supporting the price being asked — nothing more.
Stress test
Base case: SDE ≈€40,000 (Block 2 reconstruction, above) against the €85,000 asking price. Each scenario below is a € impact against that base.
Weak season — revenue down 15% against the base case
Revenue ≈€126,000 · SDE ≈€22,000
Rent uplift — statutory +20% traspaso rent uplift on transfer (LAU Art. 32)
−€3,480/year
Owner-operator requirement — buyer must hire a manager rather than run it themselves
−€22,000 → SDE ≈€18,000
Illustrative sample · worked example figures · not advice · not a template
Provenance Diligence · Illustrative sample
Provenance DiligenceReality Check · illustrative sample
Negotiation plan & verdict
Negotiation plan
Every gap, ordered into a lever
Every amber flag from the Screen and every gap found in Block 2 becomes a numbered lever here, in the order I'd raise them at the table. Names are real; amounts are redacted in this section because they only exist once real documents produce them.
1Ask the seller to explain the asking price by reference to the documented revenue, not the unsupported claimed revenue — the €62,000 gap is theirs to explain.
2Make any deposit conditional on a Portuguese tax adviser's review of the seller/business tax-clearance position and any identified exposure.
3Factor in the statutory +20% traspaso rent uplift (≈€3,480/year) — it is not optional at the landlord's discretion.
4Make any deposit conditional, in writing, on the till (POS) and bank records matching the declared €148,000.
5Put the ≈11% unmatched-receipts gap to the seller in writing; an unexplained gap is a walk trigger, not a discount.
Buyer-side escalation trigger: do not proceed without adviser review if the seller cannot produce the till and IVA records, or if the unmatched-receipts gap has no documentary explanation.
Verdict — re-issued on the fuller evidence
The Screen's provisional verdict is re-issued here now that real documents are in hand. Documents can move the verdict either way — confirm a conditional path forward, or downgrade it. Sample risk label: Only-If — the supplied documents would support further adviser-led diligence only if the asking basis is revisited against the documented figures (≈€148,000, not the claimed €210,000) and the F-1 tax position is resolved with your adviser.
Walk
Only-If
Resolve-first
No public-record blocker
Your next moves — the order that protects your money
Take this memo to your accountant first, not to the seller. The recast, the cash-consistency gap and the payback screen are arithmetic on documents you supplied — your accountant is the one who can test them against the filed returns and the bank's own certified statements. That review is what this tier was built to make worthwhile.
Resolve the F-1 tax position with your lawyer before any figure is agreed. The mechanism and its timing are set out above; requested after the sale it has no effect. This is the item that decides whether there is a deal to negotiate at all.
Put the documented basis, not the claimed one, on the table. The negotiation levers above are drawn from the seller's own papers, so each one can be evidenced in the room. Ask for the unmatched receipts to be explained in documents, not in conversation.
Only after the confirm-list clears: discuss a deposit — conditional and refundable, in writing, through your lawyer. Do not place a non-refundable deposit on the basis of this report. If a core document never appears, treat that silence as the answer.
What unlocked what
The document map
One evidence base per order: the set below is what was received and listed in the evidence-base confirmation before the clock started — the memo analyses exactly this, and nothing sent later. Late documents support an upgrade or a re-issue order, never the running engagement.
| Document | Sections it unlocked |
|---|---|
| Filed accounts / tax declarations (2–3 years) | Declared result baseline · owner salary & one-off adjustments · tax-declared vs claimed revenue check |
| Business bank statements (12–24 months) | Bank inflows vs declared takings check · cash-consistency verdict |
| Till / POS export | Capacity × hours × ticket check · dual-fraud warning where applicable |
| Lease contract | Rent-to-market adjustment · rent-renewal stress scenario · negotiation-plan holdback |
| Staff list & payroll (12–24 months) | Under-market wage adjustment · key-person stress scenario · staff-transition lever |
| Licences as held | Licence / terrace re-grant stress scenario |
| AP / AR aging (if available) | Working-capital adjustment · affordability cross (where buyer numbers are shared) |
What stays your call — neither of us can see this from a desk
Real documents narrow the picture, but they don't remove these. I name them so they're never mistaken for "checked and clear" — and so you know exactly what to put in front of your lawyer, and in what order.
- Who really owns and controls the business→ your lawyer requests a beneficial-ownership check before you sign anything
- Court cases not yet decided→ your lawyer requests a litigation certificate directly from the court
- The seller's past directorships→ your lawyer runs a director search on the named owner
- Private credit and bank liabilities→ demand a CIRBE credit-liability report, which only the seller can authorise
- Document authenticity — reviewed for internal consistency (formats, sequences, cross-totals, tax-filing sync), not authenticated with the issuing bank, AT/AEAT or TGSS→ your accountant requests the bank's own certified statements and the filed returns direct from the tax office
- A parallel all-cash trade kept off both the till and the tax filings→ undeclared income cannot be bought, financed or relied on — price the business on the declared figures only
A re-issued verdict means "consistent with the documents I was given" — it is not a certificate that the business is safe to buy, and it is not an audit. Curated or forged papers are mitigated by triangulation (till exports vs bank inflows vs quarterly tax filings — forging one is easy, forging all three in sync across quarters is tax fraud in writing), but never eliminated.
Evidence appendix — source categories
| Source category | What it's used for | Retrieval date |
|---|---|---|
| Company registry (BORME / equivalent) | Registered owner & entity; insolvency filing check | date |
| Filed accounts / tax declarations | Declared-result baseline for Block 2 reconstruction | date |
| Business bank statements | Cash-consistency cross-check | date |
| Till / POS export | Capacity-model cross-check | date |
| Lease contract | Rent adjustment & stress scenario | date |
| Municipal licence register | Activity & terrace licence status | date |
Retrieval dates are shown as placeholders here because they only exist once a real engagement is open — in the delivered memo, every row is dated and traceable to the document page it came from.
Provenance Diligence
Deal Screen and Reality Check memos personally reviewed & signed by the founder · no commission on the deal
Verdict key · Walk · Only-If · Resolve-first · No public-record blocker
This is a commercial risk screen and cash-flow reconstruction — not legal, tax, investment, valuation or financial advice; your lawyer and accountant complete the picture, and full engagement terms apply. A re-issued verdict is not a clearance and this is not an audit. Illustrative sample: the deal figures on this page are worked examples so the €950 format can be shown end-to-end; no real party or deal is named or implied. A Reality Check is produced only from the seller's real documents; without them, this tier does not activate. Nothing here limits liability where the law does not permit it, including fraud, intentional misconduct, non-excludable gross negligence, or your statutory consumer rights.
Illustrative sample · worked example figures · not advice · not a template
Provenance Diligence · Illustrative sample