SAMPLE SCOUT REPORT
The listing says $400K. The tax return says $310K.
This is a complete Scout Report — the same one a buyer sees after uploading a deal's documents. Every figure is recomputed from the financials and cited to its source. Read it end to end.
Illustrative example. “Summit Comfort Heating & Air” is a fictional business and these figures are made up to show what the engine produces. No real seller data appears on this page.
HVAC & Plumbing · Greenville, SC
Summit Comfort Heating & Air
16 years, owner-operated · ~40% recurring maintenance-contract revenue
$1.15M
Asking price
A real business worth pursuing — but at $310K of verified earnings, not the $400K on the listing. Reprice or restructure before you sign.
Seller states $400K SDE. Verified $310K — overstated by 23%.
Why
- The 23% SDE overstatement is fully explained by add-backs that don't hold — recurring costs booked as one-time, and owner pay above replacement cost — so the downside is understood, not a mystery.
- The underlying business is durable: 16 years operating, ~40% recurring maintenance revenue, in a sector that finances well under SBA.
- At the true 3.7× multiple the deal is workable but no longer a bargain — the value now is in negotiating to the verified number.
What's blocking a confident call
- No 2024 interim / TTM P&L, so the current earnings run-rate is unconfirmed.
- Recurring-contract terms and customer concentration are undisclosed — both drive how transferable the revenue is.
Clarify with the seller
- Get the add-back schedule substantiated line by line against the returns.
- Confirm the recurring-maintenance contract base is assignable to a new owner.
Confidence: medium · advisor recommendation based on the verified analysis.
01 · The catch
How we get from stated to verified SDE
Each add-back the documents don't support is stripped out, stepping the seller's stated SDE down to the figure the books actually support.
The stated SDE of $400K overstates the documented earnings by $90K (23%). Recomputing from the 2023 federal return (Form 1120S) supports $310K. The gap is $90K of add-backs that don't hold up — personal auto and travel plus 'one-time' equipment repairs that recur every year, and owner pay added back above the cost of a replacement manager. Treat the seller's earnings as $310K until the add-back schedule is substantiated line by line.
02 · Revenue & earnings quality
Is this revenue sustainable?
The earnings history behind the verified SDE — revenue and profitability across the years the documents cover.
03 · Normalizing adjustments
Add-back schedule
Every add-back the seller claimed, judged against the documents. Standard owner adjustments are accepted; discretionary and related-party items are questioned or rejected.
| Add-back | Amount | Status |
|---|---|---|
| Owner's auto & travel · 2021–2023 Form 1120S — auto & travel Booked as one-time, but the same charge appears in all three tax years (2021–2023). A cost that recurs every year isn't a discretionary add-back. | $28K | rejected |
| 'One-time' equipment overhaul · 2022 & 2023 P&L — repairs & maintenance Appears in two of the last three years — this is recurring maintenance, not a genuine non-recurring event. | $16K | rejected |
| Owner compensation above replacement cost · Broker add-back schedule The seller added back the full $120K owner salary, but the business needs a working GM / lead technician to run day-to-day. A market-rate replacement is ~$74K, so only $74K is discretionary — the remaining $46K is not. | $46K | rejected |
| Owner health insurance · 2023 Form 1120S — employee benefit programs A personal benefit run through the business — a legitimate SDE add-back. | $9K | accepted |
| One-time legal (entity restructure) · 2023 P&L — professional fees A documented, genuinely non-recurring 2023 legal fee — a legitimate add-back. | $7K | accepted |
| Verified SDE add-backs | $16K |
04 · Deal economics & buyer returns
The deal — on verified earnings
Financeability, price-to-benchmark, and buyer returns on a standard SBA 7(a) structure.
Multiple vs. industry benchmark
Revenue & SDE — history and 5-year outlook
Projected years grow the latest verified revenue and SDE at the 4% trend rate (holding the SDE margin constant) — illustrative, not a forecast.
Capital stack — SBA 7(a)
5-year cash flow — your take-home vs. debt
05 · Risk & operating profile
Where the risk lives
The qualitative read the numbers miss — each signal cited to the document, rated context / watch / risk.
The owner is the lead technician and personally holds the top customer relationships — the business runs through them day-to-day. · Offering summary — 'About the owner'
~40% of revenue is recurring maintenance contracts, but the renewal rate and contract terms weren't disclosed. · Offering summary — revenue mix
Whether the maintenance contracts are assignable to a new owner is unconfirmed, and the brand is tied to the founder. · Offering summary
16 years operating in a home-services sector that finances well under SBA, with steady demand. · Offering summary — business overview
- Listing revenue ($1.4M) is $120K above the 2023 tax return ($1.28M) — confirm the period and what's included.
- ~40% of revenue is recurring maintenance contracts, but the contract terms, renewal rate, and transferability weren't provided.
- The owner is the lead technician and holds the top customer relationships — key-person risk on transition.
06 · Your diligence plan
What's missing, and what to ask
The gaps the analysis couldn't close from the documents, turned into a request list for the seller.
Questions for the seller
- Provide the 2021–2023 federal returns and a 2024 YTD P&L so SDE can be trended, not taken from a single year.
- Break down the $120K owner-compensation add-back: what would a market-rate GM / lead technician cost to replace the owner's day-to-day role?
- Itemize the 'one-time' equipment and auto/travel add-backs — which recur annually and which are genuinely non-recurring?
- What percentage of revenue is under recurring maintenance contract, what is the renewal rate, and are the contracts assignable to a new owner?
- What share of revenue comes from the top 3 customers, and how many predate the current owner's personal relationships?
What's missing
- No 2024 interim or trailing-twelve-month P&L — the earnings trend since the 2023 return is unverified.
- Customer concentration undisclosed — the share of revenue from the top 3 accounts is unknown.
- The $12K 'marketing' add-back on the broker schedule has no supporting invoice or explanation.
- No equipment / vehicle list or fixed-asset schedule to confirm what conveys at close.
Confidence: medium — Recomputed from the 2021–2023 federal returns, which are high-quality — but there's no 2024 interim or trailing-twelve-month P&L, so the current run-rate since the last filed year is unconfirmed.
This is what verification looks like.
Acquire Scout does this for your deal — recomputes the seller's earnings from the real documents, catches inflated numbers, and shows its work. A quality-of-earnings report costs $15,000; plans start at $39/mo.
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