Receiving a seller's financial statements during NDIS provider due diligence is one thing. Knowing what to do with them is another.
Most buyers know to look at revenue and profit. Far fewer know how to assess whether those numbers are real, repeatable and transferable to a new owner. In the NDIS sector, where performance can be shaped by owner-specific relationships, NDIS pricing decisions, claiming practices and regulatory compliance, headline figures can look strong while the underlying quality of earnings tells a different story.
This guide walks through what buyers should actually do when they open an NDIS business's financial statements.
This article is general information only. It is not legal, tax, financial or credit advice. Get advice on your own circumstances before you act. Your accountant should carry out or review any financial due diligence.
Start With Three Years, Not One
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The first thing to establish is the time frame. A single year of financials tells you relatively little. Three years of financial statements — profit and loss, balance sheet and, ideally, monthly management accounts — shows whether the business is growing, stable or quietly declining, and whether any given year is representative or an outlier.
Look at revenue across all three years. Is it growing, flat or declining? Is there a year that looks materially different — a spike or a dip — and if so, what explains it?
In the NDIS context, be careful with a shortcut some buyers use. Revenue growth that roughly matches annual NDIS price limit changes does not by itself prove that participant numbers or service volumes were flat — and revenue that outpaces them does not prove genuine growth either. Price limits are maximums, not automatic revenue increases. Decompose the change instead:
- Delivered service hours or units by support type, month by month
- Realised rates actually charged, compared with the applicable NDIS pricing arrangements
- Changes in service mix, staff utilisation and cancellations
- Anonymised participant start and end dates, in counts or bands rather than names
Understand Normalised EBITDA and Why It Matters
Buyers and advisers often discuss NDIS business value by reference to EBITDA — earnings before interest, tax, depreciation and amortisation. But the EBITDA in the seller's accounts is rarely the figure a buyer should rely on. The relevant measure is normalised EBITDA, which adjusts reported earnings to reflect the sustainable, transferable earning capacity of the business. Our guide to normalised EBITDA and add-backs works through the mechanics.
Normalisation adds back or removes items that distort the underlying picture: things that will not continue under a new owner, or that reflect the seller's personal arrangements rather than the business's profitability. Recurring costs cannot simply be added back because they are inconvenient.
Owner compensation compared with the cost of replacing the owner. This is often the most scrutinised adjustment. As an illustrative example only: if the outgoing owner's total remuneration is $200,000 and a replacement manager doing the same work would cost $130,000 including relevant on-costs such as superannuation and payroll tax, the $70,000 difference might be added back. The reverse also applies — an owner who pays themselves well below market (or nothing) creates an understated cost base, and a buyer who has to employ a manager will face a cost the current accounts do not show.
Personal expenses through the business. Owner-operated businesses sometimes run personal or discretionary expenses through the books — vehicles, phones, travel, subscriptions. These can be identified, quantified and added back, but only to the extent they are genuinely personal and evidenced.
One-off and non-recurring items. Genuinely one-off costs, such as legal fees for a dispute that is resolved, can be excluded; equally, genuinely one-off income, such as a grant received in one year, should be removed. Items that recur every year or two are not one-off. Capital items that were expensed need review by your accountant on their classification — they are not automatic add-backs, and the business may still need to spend cash on equipment and replacements in future.
Related-party transactions. If the business pays rent to a related entity, compare the rent with market terms. But do not assume the rent will be renegotiated after settlement: check the binding lease terms and what the deal actually provides before making any adjustment. Above-market or below-market rent only changes if the lease or the deal changes it.
NDIS-Specific Revenue Quality Checks
Beyond normalisation, NDIS businesses have revenue characteristics that need separate testing.
How the business is paid. Not every provider is paid through the portal. For NDIA-managed participants, registered providers make payment requests to the NDIA; for plan-managed participants, providers invoice the plan manager; for self-managed participants, providers invoice the participant, who may claim then pay or pay then claim. The NDIS guide to getting paid and the participant guidance on how to pay for NDIS supports explain the channels.
Billing completeness and claiming patterns. Reconcile, month by month, from accrual revenue in the accounts, to claims and invoices raised, to aged debtors and credit notes, to cash received in the bank. A business that accrues revenue before it is claimed is not automatically overstating revenue — but unexplained gaps, backlogs of unsubmitted claims, rejected claims or frequent write-offs are questions to resolve.
Debtor quality. The NDIA's getting paid guide says valid claims from providers a participant has recorded as "my providers" are usually paid within two to three business days, while claims from providers not recorded that way, or claims needing extra checks, can take around ten business days; timing is not guaranteed. A debtors balance larger than the business's claiming cycle would suggest may point to rejected or disputed claims, claiming errors, or slow payment by some plan managers or self-managed participants. Each has a different risk profile, so ask for aged debtors by funding type and investigate the older balances. Do not assume one funding type is inherently more reliable than another without the business's own data.
Revenue by support category. Some support categories are more exposed to reform, pricing changes or registration requirements. Revenue concentrated in particular categories — for example plan management, support coordination or supports delivered unregistered — should be assessed against the current rules and official guidance for those categories, not just the current revenue figure. Assess participant and referral concentration in anonymised bands at the same time.
Working Capital and Unpaid Entitlements
Two areas of the balance sheet deserve specific attention beyond the profit and loss.
Working capital. What working capital comes with the business, and whether cash is included, is negotiated in the sale agreement — it is not a universal rule. Parties often agree a target or "normal" level and an adjustment mechanism. Review cash, receivables and payables separately across the prior twelve months: a seller who accelerates collections or delays paying suppliers just before settlement can change the cash position, and the effect on any working capital adjustment depends on how the agreement defines it. Our guide to working capital when buying an NDIS business explains the timing issues.
Employee entitlements and tax liabilities. Accrued annual leave and long service leave are employee entitlements; PAYG withholding owed to the ATO is a tax liability, not an employee leave entitlement. In a business with a large direct support workforce these balances can be significant. Identify them before settlement and agree who bears them. In a share sale they generally remain liabilities of the company the buyer acquires. In an asset sale, the treatment depends on the structure, whether employees transfer to the buyer and the particular entitlement — the Fair Work Ombudsman's guidance on employee entitlements on a transfer of business explains that some entitlements may carry over and others may be paid out. See also our guide to staff and employment obligations.
The Quality of Earnings Question
Underlying all of this analysis is one question: are these earnings real, repeatable and transferable?
Real means revenue is supported by service delivery records, claims and invoices, participant service agreements and bank receipts. Repeatable means it does not depend on a one-off relationship, a windfall or pricing that is about to change. Transferable means the structure of the business — its staff, systems, registration position and referral relationships — can carry on under new ownership rather than depending on the outgoing owner personally. Because participants choose their providers, even a well-structured business offers continuity, not a guarantee that revenue will stay.
Buyers who treat the financial statements as the start of their analysis rather than the end, and who test each of these dimensions, are far better placed to make a well-founded offer on an NDIS business for sale than those who take headline numbers at face value. Our buyer's due diligence checklist sets out the wider review.
Working with an NDIS business broker and an accountant experienced in NDIS acquisitions means having the right framework and questions in place before due diligence begins, not developing them on the run as a deadline approaches.
Talk to Us
Looking at an NDIS business for sale and want to make sure the financials stack up? NDIS Business Sales works exclusively in the NDIS sector. We help buyers understand what they are looking at and work alongside their financial and legal advisers. Learn about our buyer services or contact NDIS Business Sales for a confidential, obligation-free conversation.
