What makes a business worth buying in India

An owner selling a business will usually lead with a turnover and a profit. For a searcher, who buys one business to run as its chief executive, the price and the loan both rest on those two figures.

In India, both can be tested against records the owner did not prepare.

01Can the earnings be proved from the company's records?

SRF's diligence on an Indian business sets the owner's figures beside records kept by someone else: the GST system, the bank and the tax department.

Khaitan & Co's guide to private M&A in India says a buyer's diligence usually looks back three years, so ask for three years of each record.

Start with turnover. Sales in the books should agree with sales declared in the GST returns, month by month, once timing differences are explained.

If the books show more, either GST is owed on the gap or the sales are not real. If the returns show more, the books are incomplete. I would read the GST returns before the owner's spreadsheet.

Then follow the money. Collections in the books should agree with receipts in the bank statements, and large receipts from people who are not customers need an explanation.

Next, check what customers have reported. Many deduct tax at source (TDS) when they pay, and report the payment against the company's PAN.

Those reports appear in Form 26AS and the Annual Information Statement (AIS) for years before April 2026; under the 2026 rules the statement is Form 168. Payments reported there but missing from the books point to income left out.

Ask how much is sold for cash. Recorded, banked and declared cash sales are ordinary. Profit the owner says is earned in cash but never recorded cannot be bought: you cannot prove it, and a lender will not count it.

Find the owner's personal costs run through the company, such as cars, travel or a relative paid for work nobody does. They are added back to profit because they stop when the owner leaves, and each needs a bill behind it.

List every dealing with the owner's other companies and relatives, such as rent paid to the family for the premises or goods bought from a sister concern. Ask whether each is at a market price, and whether it will continue.

A low rent that becomes a market rent comes straight off the profit.

Last, check the statutory dues: provident fund (PF), employees' state insurance (ESI), TDS and GST. Look for money deducted from salaries or collected from customers and not paid over, or paid late.

Interest and penalties run on those dues. If you buy the shares, the dues stay with the company, and so does any tax on unrecorded income.

03What stays with the owner when the business is sold?

Find what is tied to the owner, or to the old company, before you value the business.

• Personal guarantees. Has the owner guaranteed the company's loans? A lender is likely to ask for new security before it releases that guarantee.
• Licences and consents. Check whose name each is in, and whether the regulator will reissue it after the sale.
• GST registration in a slump sale. If you buy the business rather than the shares, the buying company must register from the date of transfer, under section 22(3) of the CGST Act.

If the managers are relatives, ask whether they stay after the sale or leave with the seller. Ask too whether the finance head is an employee or the outside accountant who files the returns.

An outside accountant's knowledge of the books may leave with the owner.

Agree in writing how long the owner will stay to hand over, in what role and on what pay. Part of the price can be tied to that handover.

05Can the cash carry the price you are paying?

Search-fund deals are priced as a multiple of EBITDA. IESE's 2026 study puts the international median at 5.7 times EBITDA over all years, and 5.1 times for deals in 2024 and 2025.

Its Exhibit 7 gives 6.3 times for the US and Canada over all years. None of these is an Indian price, and there is no Indian deal to measure against.

The illustration below uses 5 times as a round number, not as a benchmark for Indian prices.

Say a business earns ₹4 crore of EBITDA a year and is bought at 5 times, for ₹20 crore. The searcher and investors put in ₹13 crore of equity.

A non-banking finance company (NBFC) lends ₹4 crore over five years. The seller leaves ₹3 crore of the price in the business, paid over five years.

The loan comes from an NBFC because a bank cannot finance a new company's purchase of control under the RBI's 2026 rules. The search fund models open to Indian searchers set out the funding routes.

The seller's part can be fixed, or an earn-out, paid only if the business hits agreed targets. In strategic buys of founder-run Indian companies, Khaitan & Co says earn-outs usually run one to three years.

Limits under the Foreign Exchange Management Act (FEMA) apply where one side is outside India, or where the Indian buying company is owned or controlled by foreign investors.

They cap the deferred part at 25% of the price, paid within 18 months. Beyond 25% or 18 months needs RBI approval.

As planned, ₹0.4 crore is left after the lenders. If EBITDA falls by a quarter, the business cannot meet its payments in full.

A deal that fails this test needs a lower price, less debt, or more of the price paid later and linked to results.

A deal that fails this test needs a lower price, less debt, or more of the price paid later and linked to results.

I would run this test before agreeing a price in the letter of intent (LOI), the short offer that sets the price and main terms before full diligence.

07What should make a buyer walk away?

• Turnover in the books that does not agree with the GST returns, with no explanation that holds up.
• Profit the owner says is real but that sits in cash, outside the books.
• Pf, esi, TDS or GST deducted or collected and not paid over, or paid late year after year.
• Dealings with the owner's other companies at prices no outsider would accept.
• Profit that never reaches the bank, because receivables and stock grow faster than sales.
• Open GST or income-tax notices that nobody has answered.
• Dues to micro and small suppliers that are past 45 days.
• Personal guarantees for the company's loans that the bank has not agreed to release.
• Premises owned by the family with no lease, or a lease that ends with the sale.