How to Verify a Business Before Buying It

Create a Claim Register

List the assertions supporting the price: revenue, normalized earnings, recurring customers, employee continuity, asset ownership, lease term, licensing, lack of debt, and growth. Assign each claim a source, owner, status, and deadline.

Use statuses such as seller-stated, document-supported, independently corroborated, conflicted, unavailable, and not applicable. Confidence should follow the evidence, not replace it.

Verify Earnings

Reconcile tax returns, monthly statements, the general ledger, bank deposits, merchant statements, payroll, invoices, and operational reports. Rebuild SDE or EBITDA and verify every add-back.

Compare historical years, trailing twelve months, and current year-to-date performance. Normalize owner replacement, related-party costs, deferred expenses, working capital, and maintenance capex.

Verify Revenue Durability

Calculate customer concentration by revenue and gross profit. Review contracts, assignment, renewal, termination, pricing, churn, credits, refunds, backlog, and pipeline definitions. Confirm whether relationships belong to the seller personally.

Verify What Transfers

Trace ownership and transfer requirements for assets, inventory, leases, contracts, licenses, permits, phone numbers, domains, software, data, intellectual property, supplier terms, and insurance. A useful business can still be a poor acquisition if essential rights do not survive closing.

Verify Liabilities Beyond the Data Room

Search appropriate entity, UCC, court, bankruptcy, licensing, tax, EPA, OSHA, DOL, FMCSA, and industry sources. Treat possible matches as candidates until identifiers align. Treat an empty search as a recorded outcome, not proof of absence.

Reconcile and Decide

For every conflict, request the next-best evidence and estimate potential financial or operational impact as a range. Resolve the issue through evidence, remediation, price, structure, insurance, escrow, closing condition, or termination.

Refresh changeable evidence before closing and compare the current facts with the LOI baseline. Preserve versions so reviewers can see what changed.