How do I verify the revenue claims of a business I'm considering buying?
Tax returns are your most reliable verification tool. Request at least three years of business tax returns directly from the seller. These numbers were reported to the IRS, so sellers are unlikely to inflate them. If the claimed revenue doesn’t match the tax returns, that’s your answer.
Bank statements should corroborate what the tax returns show. Total deposits minus non-revenue items like loans, owner contributions, and transfers should roughly align with reported revenue. Request 12 to 24 months of statements for all business accounts. If deposits don’t support the claimed revenue, either the seller is underreporting to the IRS or overstating to you.
Financial statements add another layer. Compare the profit and loss statements to both tax returns and bank deposits. Look at the balance sheet for accounts receivable. High receivables could mean revenue was booked but never collected. Ask for aging reports to see how much of that receivable is actually collectible versus write-offs waiting to happen.
Dig into the source documents when possible. POS system reports, invoicing software exports, and merchant processing statements all tell their own version of the story. These should reconcile with what appears on financial statements. If a restaurant claims certain revenue but the credit card processing statements show significantly less, someone is either running a lot of cash or exaggerating.
Watch for common red flags. Sudden revenue spikes in the year or two before sale could indicate manipulation. Cash-heavy businesses are inherently harder to verify and buyers often discount their value for this reason. Missing documentation for any period is a problem. Sellers who delay or make excuses about providing records are telling you something.
A Los Angeles County bookkeeper who understands small business accounting can help you know what to ask for and what the documents should show. But verification goes beyond just reading numbers on a page.
Consider getting professional business purchase analysis before committing. An experienced professional will spot inconsistencies you might miss, ask questions you wouldn’t think of, and give you an honest assessment of whether the numbers hold up. The cost of proper due diligence is small compared to overpaying for a business based on inflated revenue claims.
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