First-Time Buyers
What financial documents should I review?
Tax returns, P&Ls, balance sheets, AR/AP aging, bank statements, and customer lists.
Practical Explanation
Standard diligence package: 3 years of tax returns, monthly P&Ls and balance sheets, year-to-date P&L, AR and AP aging, bank statements, customer concentration list, vendor list, lease, employee roster, insurance certificates, and any contracts.
Real-World Example
A buyer compares the seller's P&L to their tax returns and discovers $80K in personal expenses run through the business — a normal add-back, but only if documented.
Typical cash required
Budget for a CPA-led quality of earnings review ($5K–$25K depending on deal size).
Experience required
A CPA does the heavy lifting on diligence.
Advantages
- ✓Surfaces real cash flow
- ✓Identifies add-backs and one-time items
- ✓Reveals trend lines
Risks
- !Seller stalls on production
- !Inconsistent numbers between tax and books
Frequently Asked Questions
What's a 'QoE'?
Quality of Earnings — a CPA report that normalizes earnings, validates add-backs, and assesses cash-flow quality.
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