How do I ask for financial information?

May 14, 2025

by a searcher from The University of Chicago - Booth School of Business in Chicago, IL, USA

I've received a lot of advice on the importance of thoroughly understanding the finances of a target business before submitting an LOI and ensuring further clarity before closing. However, I'm struggling to interpret what exactly this entails in practice. Specifically, I'm finding it challenging to get access to detailed financial data. Can anyone provide guidance on: + What specific documents / data should I request from a seller to gain a full understanding of the business’s financial health? (Is it just tax returns and P&L?) + How can I best ask for this information in a way that encourages transparency? + What strategies or tips do you have for obtaining more detailed financial data, especially when the broker or seller is reluctant to provide it? The data is always messy (which I understand) but "getting comfortable" has proven quite challenging.

Reply by a searcher
from Massachusetts Institute of Technology in Apex, NC, USA

Yeah they don't teach this in business school. Most SMB financials (even middle market firms) are a mess. Like bodies are buried and hard to know what's what. It's not necessarily hiding things but usually lack of sophistication. Checking acconut won't balance, ahh just do a JE to book it to X account (like inventory). Faster/cheaper and most of these businesses are "cash-flow" businesses so as long as bank account went up, we did good. By giving you full access, you can find what an idiot I am, so I don't want to do that. You'll use everything against me to negotiate a lower price so less is more for me. My advice is to create a list of what you really need/want to do an analysis on the business. Give them how to pull this data (i.e. in QBO, go to x report and download). Help provide rationale for your requests...my investors want me to model customer growth, can you share your client list by revenue and length of time (it's fine if it's anonymized). Blame someone else so you can keep the solid relationship - investors, bank, accountant etc. (To be the bad guy/intermediary, is half of why brokers/IB get paid IMO). Verify sales/cash (easy to manipulate this - fake invoices, bad debt hanging on books), customer concentration/churn (note - most won't have this easily available or want to do the work, and even if they do, you probably won't agree on their methods), and fully loaded expenses (any off book/sweetheart deals) as well as any CapEx (maintenance) that is needed. If you know the industry, you should be able to build a model that's pretty close to accurate w/o much data from them. Balance sheet is where most of your gotchas will be so few years records will confirm...P&L everyone looks at, so it typically is in good shape. Each industry will have ways people make their business look better or worse. Accounting is a dark art. Check in common spots for bodies. Paying for a QoE depending on deal size during formal due diligence is probably recommended - nice insurance policy and they get to be the bad guy requesting docs. Verify revenues in, expenses out, gross margins, maintenance CapEx, and client concentration risks. Do research on industry/market so you know what "normal" looks like - 80% margins when most do 50%, tell me how and why that lasts. Trust your gut and buy a business based on what you can do with the business, not what was done.

Reply by an intermediary
from Texas A&M University in Houston, TX, USA

It’s common for a broker to hold back tax returns before your offer has been accepted. Most experienced (main street size) buyers understand this. If you push too hard for sensitive information like tax returns before an accepted offer, it may discredit you in the broker's eyes. You should be able to review a P&L with “add-backs” before submitting your offer. In theory, this gives you a sense of what to expect once the tax returns are available during due diligence. Real world, not always the case. The best way to get a broker to take you seriously (and share information) is giving them reasons to believe you’re a serious buyer. A serious buyer means you have money and you are likely to close. Below is an email template that may help your case: QUOTE: Hello, Thank you for the information shared regarding (insert business name). This opportunity is of particular interest, as I've been specifically looking to buy (insert what you like about the deal. Show the broker you took time to read their CIM). I’ve attached a Personal Financial Statement (use the SBA’s PFS form) and intend to submit a bank statement with my offer showing a balance of at least $XXX,XXX (10% of the purchase price). I’m also prequalified for an SBA Loan by (insert lender’s name) that exceeds the asking price of (insert business name). When submitting my offer, I want it to be as complete as possible, so there’s minimal negotiation, if your Seller accepts it. To facilitate this, I would appreciate the opportunity to review the prior 3-years of tax returns, P&L, balance sheet, and your identified add-backs. By reviewing this information in advance of my offer, it reduces the likelihood of having to make any adjustments due to new information after an accepted offer. If you’re not able to share any of the above yet, I would be pleased to make an indicative offer based on information that’s available. As part of my offer, I will also be providing a list of information that I’ll request to review for due diligence. If there’s any information that’s not available on my list, it would be appreciated to know that upfront. Look forward to further discussion. UNQUOTE

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