SBA Guides · Verified against SOP 50 10 8 · Updated July 2026
Verify the Seller's Financials Yourself
Don't let the lender be the first person to audit the books you're about to buy. A buyer's DIY quality of earnings — reconcile, tie out, pressure-test the add-backs — framed around what SBA underwriting will actually do.
A "quality of earnings" review answers one question: is the cash flow real? You can do most of it yourself before the LOI — reconcile the bank deposits to reported revenue, tie the P&L to the filed tax returns, and separate the add-backs a lender will accept from the ones it will strike. The SBA lender verifies the returns against IRS transcripts anyway, so anything that doesn't reconcile gets corrected — better it's you who finds it first.
Written by Thomas Hartwell, author of the FUNDED series of industry-specific SBA lending guides.
Step 1 — Reconcile bank deposits to reported revenue
Get 12 months of business bank statements. Total the deposits and compare them to the sales on the P&L and the gross receipts on the tax return. The three should broadly agree. If reported sales are well above what the deposits support, ask why; if deposits are well above reported sales, that's a different question. Cash-heavy businesses need the most scrutiny — and any revenue that never hit a tax return doesn't exist for your loan.
Step 2 — Tie the P&L to the filed tax returns
Ask for three years of business tax returns and lay them beside the P&Ls the broker gave you. Where the internal numbers are rosier than what was filed, that gap is exactly where your deal gets corrected at underwriting — because the SBA lender pulls IRS transcripts and verifies. Finding the gaps yourself, before you agree to a price, is the whole point of the exercise.
Step 3 — Pressure-test the add-backs
Sellers price on "seller's discretionary earnings" — profit plus add-backs. Lenders rebuild that number from the tax returns and strike anything undocumented or actually recurring. Accept: owner comp a new owner won't replace, depreciation and amortization, interest on refinanced debt, clearly identifiable one-time or personal expenses. Strike: vague "miscellaneous" add-backs, expenses with no paper trail, and costs the business will keep incurring.
Every dollar of add-back the lender strikes lowers the cash flow — and because price is a multiple of cash flow, it lowers what the deal can support by several dollars. This is the single biggest reason an asking price and a financeable price diverge.
Step 4 — Decide whether you need a paid QoE
A formal quality-of-earnings engagement can run into five figures. On a larger deal, messy books, significant inventory, or when a lender or partner requires it, that's money well spent. On a smaller, clean main-street deal, a buyer's own reconciliation plus the lender's underwriting often covers the ground. Either way, the rule holds: someone competent verifies the numbers before you're bound.
The kit does this math on your deal
The "Will the SBA Fund This Deal?" kit rebuilds the seller's cash flow the way an underwriter will, flags the add-backs that won't survive IRS-transcript verification, and turns the defensible number into your walk-away price and financeability verdict — verified against the current SOP 50 10 8. And we don't sell your lead.
See the Kit →DIY Quality of Earnings — FAQ
How do I verify a seller's revenue is real?
Reconcile the bank deposits to the reported revenue. Get 12 months of business bank statements and add up the deposits, then compare that to the sales on the P&L and the gross receipts on the tax return. The three should broadly agree. Large unexplained gaps — deposits well below reported sales, or reported sales the deposits can't support — are the first thing to run down. Cash businesses need extra scrutiny here, and remember any revenue that isn't on the tax return doesn't count for your loan.
What add-backs will an SBA lender accept?
The ones you can document. Accepted add-backs typically include the owner's compensation a new owner won't replace at the same level, depreciation and amortization, interest on debt being refinanced, and clearly identifiable one-time or personal expenses. Struck add-backs are the ones with no paper trail or that are really recurring costs of running the business. Because the lender rebuilds seller's discretionary earnings from the tax returns, every add-back needs to trace to something filed.
What is the tax-return tie-out?
It's confirming the seller's internal P&L matches their filed federal tax returns. Ask for three years of business returns and lay them next to the P&Ls the broker provided. The SBA lender will verify the returns against IRS transcripts, so any place the internal numbers are rosier than the filed numbers is a place your deal — and your price — will get corrected at underwriting. Better to find it yourself before the LOI.
When is a paid quality-of-earnings report worth it?
On larger or more complex deals, when the books are disorganized, when there's significant inventory or accrual accounting, or when a lender or equity partner requires one. A formal QoE can cost into the five figures, so on a smaller, clean main-street deal a buyer's own reconciliation plus the lender's underwriting often covers the ground. The point is that someone competent verifies the numbers before you're bound — and that it's not the first time anyone has looked.