Spreadsheets lie, sometimes by accident, sometimes on purpose. Your job in financial diligence is to triangulate: every revenue claim should be verifiable from at least two independent sources.
The three-source rule. Confirm reported recurring revenue against:
1. The account list, sum of monthly rates × 12 should approximate annual recurring revenue.
2. Bank deposits, monthly deposits over 24 months should match within ~5% of expected recurring + reported repair income.
3. Merchant processor statements, for the auto-pay portion, this is unforgeable.
If any two don't reconcile, dig. Patterns of variance are not.
The 24-month bank reconciliation. Ask for 24 months of business bank statements (PDFs or read-only access). Categorize every deposit:
- Recurring service (auto-pay batches and recurring invoices)
- Repair / one-time work
- Chemical / retail sales
- Refunds, returns, transfers
Build a spreadsheet that compares the seller's reported monthly revenue to your reconstructed deposit total. A clean route comes within 5%. Variances of 10%+ require explanation. Variances of 25%+ are a walk signal until proven otherwise.
Sample-test the account list. Pick 10 random accounts from the seller's list. For each, ask the seller to show:
- The customer's billing record in the CRM (rate, start date, payment history)
- The most recent 3 months of charges in the merchant processor
- Service notes for the past 60 days
If the rate in the CRM matches the merchant processor matches the seller's spreadsheet, that account is real. Repeat 10 times. If even one fails to reconcile, expand the sample.
Tax return cross-check. Compare the P&L to Schedule C (sole prop) or the appropriate business return. Reported gross receipts should approximate your reconstructed deposits +/- timing. A wide gap means either (a) cash off the books, (b) deposits being routed to a personal account, or (c) bookkeeping errors. None of these are acceptable surprises.
Add-back interrogation. If the seller is presenting "seller's discretionary earnings" with personal add-backs, scrutinize each:
- Vehicle, only the personal-use portion is a legit add-back; commercial use stays.
- Phone, internet, partial add-backs, document the % personal.
- Family on payroll, only if they did no work; otherwise the cost is real.
- One-time expenses, only true one-timers (lawsuit settlement, equipment write-off). "Slow January" is not an add-back.
A clean add-back schedule with documentation is fine. A 25-line add-back schedule that doubles EBITDA is a red flag.
Off-platform payments. Ask directly: "Is any revenue paid in cash, Venmo, Zelle, or to a personal account?" If yes, that revenue does not transfer with the sale because there's no contractual relationship the buyer can inherit. Discount accordingly or refuse to value it.
Reminder: This is operational guidance, not accounting advice. For any deal of meaningful size, hire a CPA to review the financials. Their fee is a fraction of what they'll save you in a renegotiation or walk-away.