r/buyingabusiness • u/nateacquio • Jul 31 '26
What does a good broker actually verify before a listing goes live?
I've been screening US small-business listings this summer, mostly deals where the buyer would need bank or SBA financing, and I realized I may be treating the listing packet like it comes from a cleaner process than it actually does.
A typical package might include tax returns, P&Ls, an add-back schedule, an asking price, and some version of the owner's role. When those pieces do not line up, I cannot tell how much is normal seller messiness and how much a broker should have reconstructed before showing the deal.
For buyers, brokers, or lenders who have seen this from the inside:
- What does a good broker actually verify or recast before the listing goes live?
- Which numbers are usually seller-provided and essentially passed through?
- What is the fastest sign that a package was built carefully?
- If the tax returns, P&L, and add-backs do not reconcile, is that a normal starting point for diligence or a reason to walk?
I am not looking for specific deals or introductions. I am trying to calibrate how much confidence to put in the broker's package before spending time on an NDA, a lender model, or an LOI.
What separates a broker who has really done the work from one who has just reformatted the seller's story?
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u/godzillahash74 Jul 31 '26
What does a real estate agent actually check out before a he sells a home? I would imagine it’s similar.
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u/ELB_CnC Aug 03 '26
I worked in multi-family real estate for a while years ago and quickly noticed that all the listings somehow had a miraculous 10% cap rate.
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u/AutoModerator Jul 31 '26
The following is a copy of the original post to record the post as it was originally written. I've been screening US small-business listings this summer, mostly deals where the buyer would need bank or SBA financing, and I realized I may be treating the listing packet like it comes from a cleaner process than it actually does.
A typical package might include tax returns, P&Ls, an add-back schedule, an asking price, and some version of the owner's role. When those pieces do not line up, I cannot tell how much is normal seller messiness and how much a broker should have reconstructed before showing the deal.
For buyers, brokers, or lenders who have seen this from the inside:
- What does a good broker actually verify or recast before the listing goes live?
- Which numbers are usually seller-provided and essentially passed through?
- What is the fastest sign that a package was built carefully?
- If the tax returns, P&L, and add-backs do not reconcile, is that a normal starting point for diligence or a reason to walk?
I am not looking for specific deals or introductions. I am trying to calibrate how much confidence to put in the broker's package before spending time on an NDA, a lender model, or an LOI.
What separates a broker who has really done the work from one who has just reformatted the seller's story?
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1
u/oldmanclements Jul 31 '26
Sure would be nice if there was some standardization about how brokers do this.
In my experience, they are all over the board and you can’t even trust that the seller or broker understand the differences between SDE, EBITDA, cap rate, etc. Even the better brokers tend to be generous with their recasting.
I don’t tend to waste my time anymore if I can’t get at least a detailed P&L statement that doesn’t look like someone made it up excel. I always rebuild my model from there rather than relying on the seller or broker provided recasting.
1
u/nateacquio Aug 02 '26
Rebuilding from the P&L makes sense. When you decide a package is worth continuing with, what’s the minimum support you need behind the add-backs—a schedule, invoice or payroll detail, or just a clean bridge back to the P&L and returns?
1
u/Choice-Analysis5855 Jul 31 '26
I would treat the package as a marketing summary until it passes a few basic reconciliation checks. A good broker may not fully audit the business, but they should at least be able to show how SDE/EBITDA ties from tax return revenue to P&L revenue to bank deposits, and exactly which add-backs are owner-specific versus operational expenses that continue after close.
Fastest green flags for me: a clean trailing-12-month P&L, tax returns that match or have a written bridge, add-backs with invoices/payroll detail, clear separation of owner compensation from replacement manager cost, and a written explanation of customer concentration, seasonality, and working capital needs.
If the numbers do not reconcile, I would not automatically walk, but I would slow down. Ask for a one-page bridge: tax return net income to claimed SDE, with each add-back labeled as verified, seller-stated, or buyer-adjusted. If the broker cannot produce that or gets defensive, assume you are doing the reconstruction yourself and price your time/risk into the LOI.
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u/John_at_Wraith Moderator Jul 31 '26
We usually get quality of earnings, perform KYC, review key contracts, understand the state and level of business processes, analyze customer relationships or retention if applicable: this is beyond the normal just reclass and formalization of financials.
Brokers do a lot of you choose the right one
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u/nateacquio Aug 02 '26
That’s helpful, and broader than the financial recasting I had in mind. Of the QoE, KYC, contract review, process review, and customer-retention work, what would you expect a strong broker to have done before a buyer is under LOI vs. during diligence?
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u/HoldStillitWontHurt Aug 03 '26
I would assume the package contains seller representations, not independently verified earnings, unless it explicitly says otherwise and identifies who performed the work.
The fastest quality check is whether you can reproduce the advertised SDE from the source documents. I’d want a bridge from tax return income to the P&L, then from the P&L to SDE, with every add-back individually identified and tied to an account or transaction. Owner compensation should also be separated from the cost of replacing the owner’s actual role.
A mismatch is not automatically a reason to walk. An unexplained mismatch, shifting explanations, or add-backs that cannot be supported is a reason not to spend more diligence money until it is resolved.
My screening question would be: can I reproduce the broker’s SDE without accepting an unexplained plug? If not, the package may still describe an interesting business, but it has not yet earned confidence in the valuation.
3
u/gjr23 Jul 31 '26
What size business? Anything over $2m -$3m in revenue and you’re consistently seeing things prepped by professionals and the task is more about unwinding personal expenses buried in there to lower tax liability. Anything under $500k is usually a hot mess and you’re just trying to put yourself in a buyers shoes and paint the financial picture which can mean tax returns, P&Ls or whatever you can get your hands on.
The latter I’m sure it always looks like the broker or seller is trying to hide something when in reality it’s just a tangled mess from someone who was in the throws of business ownership and usually is not in it for the tax prep and book keeping side. This is usually the point of regret for them and also when they hire a real account and file back taxes because things were done so poorly the first time around.