Financials Overview · Verified against accountant compilations

The earnings are real — and they reconcile.

Three years of Abacus Accounting–prepared P&Ls (FY24 FINAL, FY25, FY26 draft) confirm the Information Memorandum's headline earnings. The "suspicious" expense drop was shareholder salary, not fiction. The verification also reshapes three recommendations.
SDE verified ~$172k avg Advertising ≠ $0 Storage ~$30k/yr Stock at cost ~$228k
Earnings
verified
The dossier's #1 risk — "is the SDE even real?" — is substantially resolved. Once shareholder salaries are added back (as any buyer does), the business throws off ~$147k → ~$181k → ~$187k of owner earnings across the three years, averaging ~$172k — matching the IM's $173k. The accounts tie out.

1 Three-year Profit & Loss (actuals)

Source: Abacus Accounting Ltd compilations. FY26 is a draft for the 10 months to 31 Jan 2026, shown both as reported and annualised (×12/10).
NZDFY2024FY2025FY2026 (10mo)FY2026 ann.
Sales683,855779,492661,595793,914
Cost of sales336,760391,240355,429426,515
Gross profit347,094388,252306,166367,399
Gross margin50.8%49.8%46.3%46.3%
Operating expenses369,225395,598152,250182,700
Net profit before tax553(1)153,916184,699

At a glance it looks like profit leapt from ~$0 to $185k. It didn't — the expense line tells the real story. ↓

2 The SDE bridge — what actually happened

FY24 and FY25 showed ~$0 profit because the two working owners paid themselves shareholder salaries of ~$126k and ~$162k. Those are discretionary owner earnings, not operating losses. FY26's owners simply take drawings instead of a P&L salary — so the same earning power shows up as "profit." Add the owner remuneration back to every year and the picture is steady and strong.
Owner-earnings (SDE) reconstructionFY2024FY2025FY2026 ann.
Net profit before tax553(1)184,699
+ Shareholder salaries (2 owners)126,168161,7820 *
+ Depreciation20,71318,3660 *
+ Interest436401,828
= Owner earnings (SDE)~147,477~180,787~186,527

* FY26 draft carries no shareholder salary (owners take drawings) and no depreciation schedule yet — so its net profit is already pre-owner-remuneration. 3-year average SDE ≈ ~$172k, consistent with the IM's $173k.

Important nuance for valuation: that SDE is the reward for two working owners (~$126k–$162k of combined salary) plus refurb subcontractors. A buyer who won't work in it full-time must replace that labour — so the owner-independent earnings (after a market-rate manager) are lower, ~$95–110k. Both numbers are now grounded in real accounts, not estimates.

3 Three corrections that change the recommendations

~$30k/yr
ADVERTISING — not $0

FY24 $22,778 · FY25 $25,281 · FY26 $28,992 (10mo). Rising. But Ahrefs confirms zero Google paid search — so this is likely Trade Me promotions + social, unmanaged and untracked.

Recommendation shift: from "switch paid on from zero" → "professionalise ~$30k of existing spend & add Google Shopping/Search."

~$30k/yr
STORAGE — warehouse now cheaper

FY24 $28,796 · FY25 $29,717 · FY26 $27,413 (10mo → ~$32.9k ann.). The 4 storage units cost more than a ~100m² Wiri warehouse (~$18–24k/yr).

Recommendation shift: the warehouse move flips from "modest premium" to a ~$8–15k/yr saving — plus the operational gain.

~$228k
STOCK at book cost

FY26 closing stock $227,925 (opening $235,079). The IM's "$275k liquidation value" is above book cost — optimistic for aging stock.

Recommendation shift: reinforces the consignment / lowball structure — don't pay $275k for stock booked at $228k that's partly dead.

4 Revenue & margin in context

Revenue: a recovery, not a standing start

YearSalesvs prior
FY2023991,325—
FY2024683,855−31%
FY2025779,492+14%
FY2026 ann.793,914+2%

The business did ~$991k in FY23 — it has proven it can run at ~$1M, then fell back and is recovering. Frame growth as returning toward a demonstrated peak, not inventing demand.

Gross margin: real, mild compression

YearGP margin
FY202450.8%
FY202549.8%
FY202646.3%

A ~4.5pt slide over two years — consistent with discounting to move aging stock. Worth watching, not alarming. (FY23's margin was only ~34% — high-revenue, low-margin — so current margins are healthier than the peak year.)

5 Cost structure worth knowing (the go-forward model)

Key expense linesFY2024FY2025FY2026 (10mo)What it is
Shareholder salaries126,168161,7820Owner labour (2) — the SDE add-back
Subcontractors53,10049,71822,572Refurb / technical labour
Freight & courier52,94641,44631,797Outbound fulfilment
Storage28,79629,71727,413The 4 units → warehouse
Advertising22,77825,28128,992Trade Me promos / social (no Google)
Eftpos / payment fees1,1276507,246Payment processing
Home office16,96422,2687,216Home-based premises

FY26 is the leanest year — no shareholder salary, far lower subcontractors — which is roughly the go-forward operating shape a bootstrap buyer would inherit: lean labour, fulfilment + storage + advertising as the main controllable costs.

6 Updated earnings scorecard

DimensionWasNowWhy it changed
Earnings reality (does SDE exist?)DB+Reconciles across 3 yrs via shareholder-salary add-back
Earnings transparencyDC+Explained — but minor restatement diffs remain (DD note)
Warehouse economicsCA−Storage ~$30k/yr; consolidation now saves money
Paid-channel opportunityABNot greenfield — ~$30k already spent, just not on Google
Stock value vs askDDBook cost ~$228k < IM's $275k ask — still consign
Net effect on the verdict: the deal is more attractive, not less. The earnings are verified, the warehouse is cheaper than today, and the remaining risks (stock quality, supplier-contract transfer, replacing owner labour) are exactly the ones the consignment structure and conditional offer already handle.

7 Due-diligence notes & caveats

  • FY26 is a draft, "prepared without audit or review." Confirm the final, and that depreciation + any owner remuneration are added before relying on the $184k.
  • Restatement differences between the FY24 FINAL and the FY25 comparative (e.g. FY24 expenses $359k vs $369k; depreciation $5.5k vs $20.7k; other income $12.2k vs $22.7k incl. a $10.5k capital gain). Normal for compilations — but reconcile in DD.
  • No balance sheet supplied yet — need it for working capital, debt, and to confirm the $228k stock figure.
  • Two shareholders draw salary (Jeff Allen + one other). Confirm both roles and how much owner labour a buyer must actually replace — this sets the owner-independent earnings.
  • Still required (per the offer/DD request): tax & GST returns and bank statements to tie the compilations to filed numbers; the full line-by-line stock list by age/last-sold.
All figures from vendor-supplied Abacus Accounting compilations (unaudited). This page is an independent buy-side reading, not financial or legal advice — confirm with your accountant in formal due diligence.
← Back to the document hub