Common Financial Due Diligence Mistakes #1: Overtrusting the P&L

In asset acquisitions, buyers often focus almost exclusively on the P&L. While it’s a critical starting point, relying on it alone can be misleading.In practice, we frequently see expenses intentionally or unintentionally hidden outside the P&L, including: -Prepaid expenses (e.g., insurance) recorded as current assets but never properly expensed -System or software “development” costs capitalized when they are actually recurring maintenance expenses -Operating costs buried in owner distributions or loan repayments to owners, bypassing the income statement altogether Without tracing movements in balance sheet accounts and owner-related transactions, EBITDA can appear artificially inflated.Lesson: A clean-looking P&L does not guarantee clean earnings. Asset deals require balance sheet analytics to uncover expenses that never hit the income statement. How we help: At Centurica, our Quality of Earnings reviews include detailed balance sheet and P&L analysis, revenue and expenses normalization, to ensure buyers are valuing businesses based on true, sustainable earnings—not accounting distortions.