How do I verify a seller’s financial statements?

Sellers often present a set of financial statements alongside a list of add-backs meant to show the business’s true cash flow to an owner. Verifying those numbers means tracing them back to independent records rather than accepting the summary at face value, because the statements a seller prepares for a sale are not the same as an audited financial statement.

Matching statements to tax filings

Ask for the business’s filed corporate tax returns and notices of assessment for the same years as the financial statements, and compare reported revenue and net income line by line. A gap between what was reported to the Canada Revenue Agency and what’s shown to a buyer is a serious red flag that deserves a direct explanation, not a shrug.

Checking add-backs and adjustments

Sellers commonly add back the owner’s salary, personal vehicle expenses, one-time legal costs, or family members on payroll to show higher discretionary earnings. Each add-back needs a receipt, an invoice, or another paper trail — an add-back with no documentation should be treated as unverified, not simply accepted into the asking-price math.

Independent sources to cross-check

• Bank and merchant statements, to confirm deposits roughly match reported revenue over the same period.
• Payroll records and T4 summaries, to confirm staffing costs and owner compensation line up with what’s claimed.
• Supplier invoices and lease statements, to confirm major costs weren’t understated or shifted outside the numbers shown.

When to bring in an accountant

A quality-of-earnings review by an accountant experienced in small business acquisitions is worth the cost on any deal where the numbers matter to your financing or your offer price. It’s a more structured version of the same verification work, and it produces a written analysis a lender may also want to see.