Everything a seller tells you about a business rests on documents you haven't seen yet. The asking price is built on a cash-flow figure they calculated, using add-backs they chose, on a profit-and-loss statement they prepared themselves. None of it is audited. Some of it is optimistic. A little of it is usually wrong.
Asking for the paperwork is how that stops being an assumption. This is the list.
The seven documents to ask for
| Document | Why it matters |
|---|---|
| P&L / income statement | The core earnings picture, ideally three years. This is what the asking price is built on. |
| Tax return | The one document with a cost attached to overstating income. The single best check on the P&L. |
| Balance sheet | Debt, receivables, inventory — what you're inheriting besides the earnings. |
| Bank statements | Whether the revenue on the P&L actually arrived in a bank account. |
| CIM / offering memorandum | The seller's own narrative, plus their stated earnings and add-backs — the claims you're testing. |
| Lease | For any business with a location, the lease can be worth more than the equipment. |
| Customer / supplier contracts | Concentration risk, and which relationships actually survive a change of owner. |
Why a P&L on its own isn't enough
This is the part most first-time buyers get wrong, so it's worth being specific about.
A profit-and-loss statement is a document the seller prepared. For most small businesses it is unaudited, assembled by the owner or their bookkeeper, and there is no external consequence for presenting it favourably.
A tax return is a document they signed under penalty of perjury. Overstating income on it costs them money. That single asymmetry is what makes the tax return the most useful financial document a seller can hand you.
With only the P&L, you can check it for internal consistency — do the lines add up, is the margin plausible for the industry — but you can't check it against anything. The P&L and the tax return together are what make verification possible. Where the two disagree, one of them is wrong, and the reason for the difference is a fair question to put to the seller.
Ask early, and ask in writing
Request the financials as soon as an NDA is in place, before you've spent weeks on a deal. Two reasons:
The answer is information either way. A seller who won't produce financials after signing an NDA has told you something — either the records don't exist in usable form, or they don't want them examined. Both are worth knowing in week one rather than week eight.
A written list is harder to answer partially. Ask for the seven items as a list and you get a clear picture of what exists. Ask conversationally and you tend to get whichever documents are most flattering, one at a time.
What add-backs are, and why the list matters
Most of these documents exist to test one number: the earnings the price is based on. For a small business that number is usually SDE, and it is arrived at by taking accounting profit and adding back the owner's salary, their personal expenses run through the business, and genuine one-off costs.
Add-backs are legitimate in principle and the easiest place in a deal to inflate a figure — which is why the documents that constrain them (the tax return, the bank statements) matter more than the one that asserts them (the CIM). What SDE is and how it's calculated covers the arithmetic.
Acquire Scout recomputes a seller's earnings from documents you upload and shows you where its figure and theirs disagree — see the diligence walkthrough, or the sample report for a worked example on one deal.