Last updated: September 2026
How to review a small business before deeper diligence.
A useful first review turns seller claims, buyer adjustments, financing, additional cash needs, and your minimum requirements into a short list of what works, what does not, and what must be verified.
1. Request the records behind the seller's financial claims
Ask for three years of tax returns and profit-and-loss statements, current year-to-date results, bank and merchant records, payroll, debt schedules, lease obligations, customer or supplier concentration, inventory, and equipment condition. These records help test whether revenue and expenses are complete and recurring.
Ask the seller to list EBITDA, SDE, every add-back, owner compensation, related-party expenses, one-time items, and what is included in the asking price. Do not treat an unsupported schedule as verified evidence.
2. Separate seller claims from buyer adjustments
EBITDA means earnings before interest, taxes, depreciation, and amortization. SDE means Seller's Discretionary Earnings and may include one owner's compensation and benefits. The two are not interchangeable. An add-back is an expense the seller says will not continue; it needs evidence and a reason.
Keep seller-reported earnings beside the buyer calculation. A buyer-normalized view records justified changes to historical figures. A buyer projection records an expected future case. Indevest does not normalize the statements for you, so every adjustment should remain traceable.
Compare the same annual measure on both sides: SDE with SDE, EBITDA with EBITDA, or net operating income (NOI) with NOI. Buyer-adjusted and seller-reported amounts keep their source labels. Missing or different measures do not produce a same-measure earnings difference.
3. Account for the work and cash the purchase really needs
If the current owner sells, manages employees, serves customers, or performs skilled work, add a realistic owner replacement or manager cost unless you will perform the same work. Review the time commitment as well as the dollar adjustment.
List inventory, equipment, separately priced real estate, immediate repairs, closing costs, and opening working capital. Unknown amounts must stay unknown. A partial total should never be mistaken for all the cash required to close and operate the business.
4. Add financing and your minimum requirements
Enter the cash contribution, interest rate, and amortization term to estimate debt service, the loan payment. Actual DSCR, or Debt Service Coverage Ratio, compares annual operating earnings with annual debt payments; Required DSCR is the minimum coverage you set.
Buyer cash flow is what remains after operating expenses and debt service, shown before and after the modeled tax estimate. Set the minimum monthly cash flow and other requirements that matter to your income, cushion, and risk tolerance.
5. Read met, missed, and missing separately
Met means the supported result reaches the exact requirement. Missed means it does not, and the report shows the shortfall. A review margin can flag a nearby miss for attention but cannot turn it into a pass.
Missing means the available information cannot support that part of the review. Read the most important missing fact and next action before relying on a strong headline number.
6. Know what should trigger a pause or verification
Pause when records are incomplete, add-backs are unsupported, owner replacement is missing, customer or supplier concentration is high, lease terms are uncertain, or financing works only with optimistic income.
Also pause when the business depends on the seller, a key employee, a license, one location, or informal processes that may not transfer. The screen should tell you what evidence could resolve the concern.
7. Use a useful screen to focus deeper diligence
A useful result is permission to investigate, not permission to buy. Verify financial statements and tax returns with an accountant, financing with a lender, contracts and structure with legal counsel, taxes with a qualified adviser, and operational claims with direct evidence.
Create a free Indevest account to start the review with your real asking price, seller information, buyer adjustments, financing, and requirements.