How do you verify that a seller's numbers are real?

Which source wins when the numbers disagree?

Each source has a weakness. The internal P&L is prepared by the seller and can include anything. The tax return was filed under penalty, but it may be on a different accounting basis and may understate income. Bank statements show cash in and out, but not what the cash was for.

For financing, the tax return usually wins. SBA lenders measure debt service coverage on historical or adjusted historical cash flow, and projections cannot be used to meet the test. If the business purchase price is $3 million or more on an initial acquisition or business expansion, the lender commissions an independent quality of earnings (QoE) report and uses the QoE earnings in its coverage calculation. Either way, earnings that cannot be documented do not count.

The practical rule: price the business on the number you can prove, not the number in the listing.

How do you tie revenue to the bank statements?

The core test is a proof of cash. You add up deposits month by month and explain every difference from reported revenue. Do it for each year the lender will use.

1. Get every business bank and merchant account statement for the period. Ask the seller to confirm in writing that the list is complete.
2. Total deposits by month.
3. Remove deposits that are not revenue: transfers between the owner's accounts, loan draws, owner capital contributions and refunds from vendors.
4. Remove sales tax collected, if the business collects it.
5. Compare what remains with revenue on the P&L and on the tax return.
6. Explain the gaps. Timing differences between cash and accrual accounting are normal. Unexplained deposits or missing months are not.

Worked example. A seller's 2025 P&L shows $2,000,000 of revenue. The tax return shows $1,960,000.

• Total bank deposits: $2,180,000.
• Less transfers from the owner's personal account: $120,000.
• Less line-of-credit draws: $50,000.
• Less sales tax collected: $10,000.
• Net deposits: $2,180,000 minus $180,000 = $2,000,000. This ties to the P&L.
• Gap to the tax return: $2,000,000 minus $1,960,000 = $40,000. Ask why. A cash-basis return with $40,000 more in receivables at year-end than at the start would explain it. Ask for the receivables aging at both dates and check.

If the example had shown deposits of $1,800,000 instead, $200,000 of reported revenue would have no cash behind it. That is a stop-and-ask moment, and often a walk-away one.

How do you test expenses and add-backs?

Revenue is usually easier to verify than earnings. The earnings figure in a listing is built from add-backs, and that is where most of the gap between listing and reality sits.

• Owner compensation. SDE adds back one owner's salary and benefits. Check the payroll register to confirm the amount and that only one owner's pay is added back.
• Family on payroll. If a spouse or child is paid and does real work, you will need to replace them. That pay is not an add-back.
• "One-time" expenses. Look at three years. A repair, lawsuit or consultant that appears every year is a cost of doing business.
• Personal expenses run through the business. Ask for the general ledger detail and the receipts. Undocumented claims should not be added back.
• Below-market rent. If the seller owns the building and charges the business low rent, your rent under a new lease is the real cost.

For a fuller list, see which add-backs are legitimate.

What can POS data, invoices and other records tell you?

Tax returns and bank statements show totals. Operating data shows whether the totals are healthy and whether they will repeat.

• POS or invoicing exports by customer. These show concentration, churn and pricing. Compare the total with the P&L.
• Receivables aging. Old receivables may never be collected. They inflate accrual revenue.
• Sales tax and payroll tax filings. These are filed with different agencies than the income tax return. They are a useful cross-check on revenue and headcount.
• Merchant processor statements. For card-heavy businesses, these give an independent revenue figure.
• Vendor statements. For product businesses, cost of goods should move with revenue. If revenue rose and purchases did not, ask why.

Who should do this work, and what does it cost?

Do the first pass yourself before you spend money. A proof of cash on two or three years takes a spreadsheet and patience. It will tell you quickly whether the deal is worth a professional review.

Then bring in an accountant. A survey of deal costs with a median deal size of about $4 million found a median QoE cost of $40,000, with "QoE-lite" reviews under $10,000. QoE proposals for SBA deals have ranged from $7,500 to over $30,000. Below the $3 million threshold, SBA rules do not require a QoE, though a lender may still ask for one. For a small deal with clean tax returns, a narrower review focused on the proof of cash and add-backs is often enough; a full QoE earns its cost when the books are messy or the add-backs are large.

If you plan to buy more businesses later, ask for the seller's monthly closes as well. A company whose books an auditor can work with is worth more as the base of a holding company than one that is reconstructed once a year for taxes.

Where these numbers come from: SBA coverage and QoE rules from this guide to SBA SOP 50 10 8.1 and FunderIntel. SDE definition from Beancount's guide to BizBuySell data. QoE cost figures from the Big Deal Small Business deal cost survey and Searchfunder. The worked example uses illustrative figures. SOP 50 10 8.1 applies to loans numbered on or after October 1, 2026; lender practice under it is still settling and these are secondary summaries, so confirm current terms with your SBA lender.

Related questions

How many years of financials should I verify?

At least the years the lender will use: the last fiscal year or the average of the last two. Three years of tax returns is a common request, because a third year shows the trend. Add the current year to date from the bank statements.

What if the seller's books are a mess?

Messy books are common in small businesses and are not proof of fraud. Rebuild revenue from bank statements and tax returns. Price on what you can prove, and expect the lender to do the same.

Can I verify a business that takes a lot of cash?

You can verify only the cash that was deposited and reported. Cash the seller says was kept off the books cannot be verified, and lenders will not count it.

Should I sign the purchase agreement before verification is done?

Usually no. Verification is what the diligence period in the LOI is for. If timing forces a signed agreement first, your lawyer can tie closing to diligence conditions.

What comes next

Financial verification is one part of a longer list. The next question is what is on a due diligence checklist for buying a small business, and in what order to work through it.

Related articles

• What questions should you ask when buying a business?
• Do you need a quality of earnings report to buy a small business?
• How do you value a business with unreported cash income?
• What is the difference between SDE and EBITDA?
• What are the SBA 7(a) rules for buying a business, as of October 2026?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.