Why staged requests protect your time
You do not ask for a full data room on day one. You ask for the minimum set of documents that lets you validate the basics. If those align with your standards, you escalate. If they do not, you walk. This sequence is what separates buyers who move fast with discipline from buyers who move fast and waste months.
The minimum set of financial records needed to confirm whether a business is real on cash: last 3 months of bank statements, the matching P&L, a trailing 12-month P&L, and revenue by customer. You request these before signing an NDA.
The deeper set of records used to confirm stability, cash conversion, and underwriting accuracy: 12 to 36 months of bank statements, balance sheet and cash flow statement, general ledger export, 3 years of tax returns, and accounting system access.
Comparing bank deposits to reported revenue to confirm the P&L reflects actual cash received. Variance above 10 to 15% consistently is a red flag.
An expense the seller adds back to reported profit to show higher underlying earnings. Only add-backs that are documented and defensible should be counted in implied EBITDA.
Tier 1 proof tests.
Once Tier 1 arrives, run three quick checks. The goal is not forensic accounting. The goal is to confirm whether the numbers are trustworthy enough to keep moving.
- Test 1: Bank reconciliation Add up deposits across the three-month bank statements. Compare that total to the revenue shown on the P&L for the same period. Some variance is normal due to timing, especially with card payments and receivables. A typical range is 10 to 1 (Test 1)
- Test 2: Customer concentration check Use the revenue by customer breakdown to calculate what percent of revenue comes from the top customer and the top three customers. A top customer above 30% is a structural risk. Above 50% requires protection through deal structure, such as (Test 2)
- Test 3: Expense pattern check Scan the bank statements for patterns that distort EBITDA or signal messiness. You are looking for things like owner distributions disguised as expenses, personal spending running through the business, large unexplained cash withdrawals, or (Test 3)
- Bank reconciliation transforms Customer concentration check: Step 1 naturally follows from the prior action.
- Customer concentration check transforms Expense pattern check: Step 2 naturally follows from the prior action.
Tier 2 proof tests.
Decision gate for tier 2 proof tests. Proceed when: Tier 1 meets cash flow standards, concentration and expense picture is clear, an
- Reconsider: The deal looks real but you cannot price or structure it cleanly yet. Reconciliations are plausible but not fully docume
- Proceed: Tier 1 meets cash flow standards, concentration and expense picture is clear, and Tier 2 confirms stability, reasonable
- Walk: The story does not validate on documents, or the seller will not support basic diligence. Material deposit-to-revenue ga
- Reconsider: The deal looks real but you cannot price or structure it cleanly yet. Reconciliations are plausible but not fully docume
Documents either confirm the story or they do not
The proof test is not designed to find perfection. It is designed to find misalignment before you waste weeks. If the documents validate the story, escalate. If they do not, the time you saved is the return on this step.
This course is operational guidance, not investment, legal, tax, or financial advice. SilverShore Partners is not a registered broker-dealer or investment adviser; in qualifying private-company transactions we may operate within the federal M&A broker exemption under Section 15(b)(13) of the Securities Exchange Act. Confirm specifics with your own advisors.