M&A Advisory · For First-Time and Experienced Buyers

The number on the seller's P&L is not the number your lender will fund.

You're about to take on a loan to buy a business. The seller's financials look strong on paper. Before you sign anything, you need to know what the bank is actually going to fund, and what you're actually going to inherit. That's our job.

If this sounds like you

You think the financials look good. So why can't you sleep?

You found a business you want to buy. The seller sent over a balance sheet and a couple of P&Ls. The numbers look strong. But something nags at you, because you already know: once you sign and the loan funds, what's on those PDFs becomes your responsibility.

A buyer we recently worked with

An owner-operated service business. Around $615K in revenue. Reported 59% net margin and roughly $365K of net income. Contract labor running about 22% of revenue. A thin balance sheet. A single owner pulling everything out as draws. The buyer was funding the purchase with bank debt and wanted to know if the numbers held up. They didn't. Not the way the seller framed them.

Step 1, the reframe

What the P&L says vs. what you're actually buying

A 59% net margin on a service business almost never survives normalization. The reported number assumes the previous owner works for free, runs personal expenses through the business, and books no real depreciation. You can't, because you'll have a loan to service and a salary to draw.

What the seller showed
$365K
Reported net income on the P&L
What we'd take to your lender
~$265K
Normalized SDE: market-rate owner comp, scrubbed personal expenses, realistic capex
That $100K gap is the difference between a deal that pays itself back and a deal that becomes a weight around your neck in eighteen months. We multiply normalized SDE (not reported net) by a defensible multiple, typically 2 to 4 times for owner-dependent service businesses, to bracket what the business is actually worth. Then we back into whether the cash flow services your debt and pays you a market wage. That is the conversation we have with your lender, on your behalf.
Step 2, the five risks

Where deals like this fall apart

Click each to expand. The reported P&L doesn't surface any of these, which means the seller doesn't have to defend them unless you make them.

The reported revenue is one aggregated number. Before you commit, you need to see:
  • Top 10 customers by revenue, three years running. If the top five represent 60% or more of revenue, the business is fragile and you should price it that way.
  • Recurring revenue (maintenance contracts) vs. transactional revenue (one-time installs). Recurring is more valuable and easier to lend against.
  • Customer churn: of last year's customers, what percent bought again this year. Below 60% retention is a structural problem, not a one-off.
We demand this before you sign an LOI
Two layers of risk hidden in that single line on the P&L:
  • Key-installer concentration. Are one to three people doing 80% of the work? If yes, when they walk after the sale, the business stops shipping.
  • 1099 misclassification. At 22% of revenue, these are likely de-facto employees under the IRS common-law test. The exposure transfers to you if you continue the structure. The previous owner may not have priced it. You will pay for it.
We solve this in tax structuring
That financial signature, high reported margin with no payroll and cumulative draws that dwarf retained earnings, is a flashing light. Customer relationships, sales pipeline, technical knowledge, contractor relationships, all likely personal to the seller. Without a written transition agreement, a real non-compete, and measurable knowledge transfer, you're buying a brand and a bank account. Revenue can evaporate the day after close. This is the risk most first-time buyers under-negotiate, and the one we will not let you under-negotiate. Non-negotiable deal term
For physical-install businesses (HVAC, misting, signage, network installs), warranty work and callbacks aren't goodwill. They are absorbed liabilities you take on at close. We get the seller to put in writing:
  • Callback and warranty rate on the last three years of installs.
  • Open warranty obligations being conveyed to you.
  • Online reviews trend (Google, Yelp, BBB) and complaint history.
  • Any OSHA incidents, customer complaints, or pending litigation.
If the most recent quarter shows operating margin down sharply year over year, and new expense lines appearing (commissions, lead-gen fees), there are two scenarios with very different price tags:
  • Seasonal noise. Many small businesses have quarterly swings. We need the same quarter from the prior year to know.
  • Structural cost shift. The seller started paying for customer acquisition because organic demand softened. Margin compression continues going forward, and the valuation should drop accordingly.
We pull three prior years and the same quarter prior year before any number gets quoted to your lender.
Step 3, the diligence demand list

What the seller needs to put in writing for you

01Three full years of P&Ls and balance sheets, plus the same quarter prior year for seasonality.
02Three years of tax returns, reconciled to internal P&Ls.
03Three years of bank statements to verify cash flow.
04Top 10 customers by revenue, three years, with concentration and churn.
05Recurring vs. transactional revenue split, with the maintenance contract list.
06Contractor roster: 1099 vs. W-2, years of relationship, retention likelihood post-sale.
07The owner's actual job description, weekly hours, and which customer relationships are personal to them.
08Reason for sale, in writing.
09Itemized addback list of personal expenses run through the business.
10Asset list, lease assignability, IP being conveyed, open warranties, litigation, regulatory issues.
11The owner's commitment to a transition period and a real non-compete.
How we work with you

Three things we do, sequenced together

Most M&A advisors do one of these. We do all three. Which is why what you walk into closing with is meaningfully different.

Before you sign

Quality of Earnings

A buyer-side quality-of-earnings report you take to your lender. Normalized SDE, customer and contractor concentration, owner-dependency analysis, and a defensible valuation range that supports your loan application.

  • Normalized SDE with full addback schedule
  • Customer and contractor concentration analysis
  • Defensible valuation bracket
  • Lender-ready deliverable
Your highest-leverage deliverable on the deal.
Tax structuring

Where most advisors don't add value

Asset vs. stock election, Section 1060 purchase price allocation, 1099 reclassification remediation, the right entity for you, QBI eligibility, and structuring your loan interest for maximum deductibility.

  • Section 1060 allocation, multi-year deduction swing
  • 1099 audit-risk remediation plan
  • Entity election (LLC or S-corp) for your acquisition
  • Section 199A / QBI optimization
Can swing five to seven figures across the holding period.
After you close

Fractional CFO

Sixty to ninety days to clean up the books (real accrual accounting, A/R, A/P, fixed-asset register, proper chart of accounts), then ongoing monthly close, KPI dashboards, and the lender package your bank wants every quarter.

  • Books migration to clean accrual
  • Monthly close and lender package
  • KPI scorecard and cash forecast
  • Ongoing fractional CFO retainer
Recurring engagement that protects the loan.
Tooling, after we close

Reporting that protects your loan

Once you own the business, we connect your accounting system to Syft Analytics so you (and your lender) see what's actually happening in real time. Here's what's in-plan on the standard tier when you start.

Included on Standard

  • Multi-year P&L visualizations
  • Build P&L with addback columns
  • KPI scorecard (margin, contract labor %, fixed cost coverage)
  • Cash Manager 90 to 180 day forecast
  • Owner-action monthly commentary
  • Valuations module

Add when you scale

  • Industry benchmarks (Plus / Advanced)
  • Customer concentration module (Plus / Advanced)
  • Segments by service line (Advanced)
  • Unlimited Build P&L slots (Plus / Advanced)
  • Premium ERP integrations (add-on)

We design your stack so what you need on day one stays in-plan. You only upgrade when the business scales into the next tier.

Don't sign before we normalize.

If you're about to take on debt to buy a business, the difference between the reported number and the normalized one is the difference between a deal that pays itself back and a deal that becomes a weight around your neck. Before you sign anything, let's talk.

Start a conversation →
asktimtax.com · TimTax · Based in Fort Lauderdale, serving nationwide