How to analyze a business listing
Most listings are marketing documents. This is the order in which to take one apart so you spend diligence money only on deals worth it.
Direct answer: Analyze a business listing in four passes — verify the earnings against tax returns, recalculate the implied multiple yourself, test whether the price can be financed at 1.25x coverage, and then examine concentration, owner dependence, lease and trend risk before signing anything.
Pass 1 — Verify the earnings claim
- Ask which metric "cash flow" means: SDE, EBITDA or net profit. See SDE vs EBITDA.
- Request three years of tax returns and P&Ls, plus the add-back schedule line by line.
- Delete every add-back you cannot trace to a document, then recompute SDE.
- Reconcile revenue to bank deposits and, where relevant, sales-tax filings.
Pass 2 — Recalculate the multiple
Implied multiple = Asking price ÷ your verified SDE
Compare it to normal ranges for that earnings size. A listing advertised at 3.0x often becomes 4.2x once unsupported add-backs are removed.
Pass 3 — Test the financing
Model the down payment, interest rate and term. Check debt service coverage after your own salary, cash-on-cash return and payback period. Then re-run with revenue down 20% and interest up 2 points.
Pass 4 — Read the risk, not the copy
| Signal | What to ask |
|---|---|
| "Owner willing to train" | What exactly does the owner do daily, and who takes it over? |
| "Room for growth" | Why has the current owner not captured it? |
| Revenue up, profit flat | Are margins compressing, or is spending being deferred? |
| Few large customers | What share is the top customer, and are contracts assignable? |
| Short lease | Is renewal assignable, and at what rent? |
| Vague reason for selling | Does the story match the financial trend? |
Deal-breakers worth walking away from
- The seller will not provide tax returns.
- Reported earnings and bank deposits do not reconcile.
- A licence, franchise agreement or key contract cannot transfer.
- Revenue depends on one platform, supplier or family relationship.
- Undisclosed litigation, tax liens or unpaid payroll taxes.
Screen a listing in about two minutes
Paste the listing's revenue, profit, asking price and financing terms into the AcquireAI business listing analyzer for the implied multiple, coverage ratio, returns, payback and a scored verdict — then use the saved report during diligence.
Frequently asked questions
What documents should I request first?
Three years of tax returns, three years of P&L and balance sheets, the add-back schedule, the lease, and a customer concentration summary. Everything else can wait until those reconcile.
How long should analyzing a listing take?
Initial screening from the listing numbers takes minutes. Verifying the earnings takes days, and full diligence typically takes 30–60 days after a letter of intent.
What is the most common mistake buyers make?
Accepting the broker's cash flow figure as fact. Every downstream number — multiple, coverage ratio, return — is wrong if the earnings figure is inflated.