How can I check whether a tutoring business is profitable before I buy it?

Financial statements show what the owner reported. They do not show whether the business would earn the same money for you. For a tutoring business the gap is often in three places: when the money arrives, who does the teaching and what the owner leaves out of the costs. The steps below help you test the picture. Your accountant should do the final reading.

Match sessions to deposits

Ask for session logs or attendance records and compare them with the bank deposits for the same months. Each paid session should show up on both sides. Gaps may be innocent, such as cash payments or credits, but you should be able to explain every one. If the owner cannot produce logs, treat that as information about how the business is run.

Look at the whole school year

Tutoring tends to rise and fall with exams, report cards and holidays. A single strong month tells you little. Ask for statements covering complete school years, including summers, and ask what the owner does to keep income steady when school is out.

Prepaid packages and credits

If families pay for blocks of sessions ahead of time, find out how much teaching is still owed at closing. Money already received for sessions you must now deliver is not income you can count on. Ask your accountant how it should be treated in the purchase.

The owner’s own teaching and pay

Owners often teach many hours without paying themselves a wage. Ask how many hours they teach and what you would pay a tutor to do the same work. Also look for personal costs run through the business. Ask your accountant how to restate the earnings this way. For a wider cleanup of the numbers, see how to clean up financial records.