How to check a company's debts before buying it?
Most buyers focus on the machinery park, forgetting what is hidden in the accountant's binders. Last year, we analyzed a plant in Sosnowiec where at first glance everything seemed fine, but in reality, 167,400 PLN in unpaid social security contributions were hanging over the account. Without hard debt verification, you buy not only a hall, but also someone else's mistakes.
KRS is just the tip of the iceberg
Checking an extract from the National Court Register (KRS) is an absolute minimum that takes about 4 minutes in front of a computer. Many investors make the mistake of looking only at Section 4, where tax or customs arrears are entered. The problem is that these entries get there with a large delay, often only when the bailiff is already handling the case. At Silesia Capital Advisors, we always pull a full extract, not just the current one, to see if in the last 28 months the company hasn't had deleted entries about enforcement.
If frequent changes in the CEO position or sudden reshuffles in the board appear in history just before the transaction, a red flag goes up. Hard data from the floor show that legal stability is just as important as a working crane. It is also worth looking at the deadlines for submitting financial statements – if a company is late with them by more than 47 days, it usually has something to hide in the numbers. We aren't looking for conspiracy theories here, we are just checking every zloty that might have escaped out the side.
Debt entries hit registers with a major delay. By the time you see them, it's often too late for negotiations.
ZUS and US certificates have a short expiration date
A factory owner can show you a paper from the Tax Office (US) about no arrears dated three weeks ago. In the world of finance, that's an eternity. In the manufacturing industry in Silesia, we've seen cases where in just 14 days the debt to the taxman grew by 83,200 PLN due to an incorrect VAT settlement. We always require fresh certificates from the selling party, issued no later than 3 days before signing the letter of intent. This is the only way to avoid joint and several liability for someone else's taxes.
The situation is similar with the Social Insurance Institution (ZUS). Arrears in employee contributions are one of the most common reasons banks refuse to finance a company purchase. With a team of, say, 47 people, the monthly burdens are significant. If the seller avoids showing the login to PUE ZUS in front of you, treat it as a warning signal. We calculate real profit, not promises, so any missing transfer to ZUS must be deducted from the final price for the enterprise.
Hidden debts: leases and suppliers
The real challenge begins with trade liabilities. A factory might have modern CNC machines, but what of it if half of them are under operating leases that weren't mentioned in the first conversation? We analyze balances on the accounts of steel and component suppliers. If the average invoice payment term extended in the last quarter from 30 to 67 days, the company is probably saving liquidity at the expense of contractors. This is a hidden debt that will hit you right after taking over the gate keys.
Another point is blank promissory notes. This is a very popular form of securing hall leases or production lines in Silesia. During an audit, we check the register of issued notes. The lack of such a register in a company is a straight road to trouble. In one of our projects in 2023, we found 3 forgotten notes with a former energy supplier that could have cost the new owner an additional 112,000 PLN. Facts on the table – without checking these documents, there is no talk of a safe contract signing.
Talking to people on the floor says more than an audit
Nothing beats a site visit and a short conversation with a foreman. Employees are the first to know when a company stops paying for forklift service or consumables. If you see downtime in the hall caused by a lack of raw materials, even though the order portfolio is full, it's a sign that suppliers have blocked credit limits. This is the most painful kind of debt – a loss of trust in the market, which takes years to rebuild. We check this by calling 4-5 key trade partners of the company.
Remember that by buying a company, you also take over its litigation history. We check court portals for ongoing payment cases. Even if a case is for a small 12,500 PLN, it shows the payment culture of the previous owner. At Silesia Capital Advisors, we don't tolerate fluff – if we see a mess in payments, we say it straight. It's better to lose 2 weeks on thorough paperwork checking than 5 years paying off someone else's working capital loans taken against inventory.
Hall workers see debts faster than accounting. Lack of machine grease is often the first symptom of a lack of cash.
Summary of pre-purchase verification
Effective debt verification is a process that usually takes us from 11 to 19 business days. It cannot be done reliably in one evening. It requires access to debtor databases such as BIG, KRD, or ERIF, but above all, it requires the ability to read between the lines of the balance sheet. Every zloty found in hidden costs is your savings in the final transaction. Without unnecessary adjectives – either the numbers add up, or we walk away from the negotiating table.
If you plan to purchase a production plant or a service company in the Silesian Voivodeship, start with hard verification. Don't be fooled by painted floors in the hall and new desks in the reception. What is most important is recorded in the subsidiary ledgers and accounts receivable/payable. Our team, consisting of 7 specialists, analyzed 38 such entities last year, saving our clients from financial landmines with a total value exceeding 2.4 million PLN.
