When deciding whether to purchase an existing business, you must thoroughly investigate the business and obtain information from the seller, including at least three years of financial statements.
You need accurate financial statements/tax returns for the business in order to make an informed decision about buying it. Should the seller tell you the business has unreported cash sales, beware! Inaccurate reporting to tax agencies is dishonest and illegal. Seller claims of unreported sales should never be counted to determine the cash flow of a business. These claims are unreliable at best. When making a purchase decision, the buyer should rely on financial information which can be documented (i.e. tax returns, accountant-generated financial reports). Lenders only consider documented financial information and so should you.