Buyer’s guide · Diligence
How to tie bank deposits to reported revenue before you buy
The single most telling test in small-business diligence costs nothing and takes an afternoon: line the seller’s bank statements up against the profit and loss statement they handed you, month by month, and see whether the money that actually arrived matches the revenue they say the business earns. Sellers rarely volunteer statements with the teaser package, and buyers rarely ask — which is precisely why the test separates a real business from a polished document.
01Pull the evidence in its rawest form
Ask for 12 to 24 months of business bank statements, the profit and loss statement by month for the same period, and the last two or three tax returns. Statements straight from the bank portal are the point: a seller-assembled spreadsheet of "monthly deposits" is not evidence, it is a summary of evidence, and summaries are where errors and edits live.
02Tie month by month, not year to year
For each month, add up every deposit into the operating account and compare it to that month’s reported revenue. A single annual ratio hides the interesting months; a monthly series shows you exactly when the two numbers drifted apart. A spreadsheet is fine for this — the arithmetic is simple, the discipline of doing it twelve or twenty-four times is what most buyers skip.
03Expect noise, and know its shapes
Deposits will never equal revenue exactly. Accounts receivable collections lag the sale; refunds and chargebacks reduce the cash; a December sale can land in a January account; owner contributions look like deposits. These have recognisable shapes: a lag shifts the number between adjacent months, refunds shave a thin and fairly steady percentage, and receivable swings show up in slow, seasonal waves.
04Treat the wrong shapes as flags
Round-number transfers in (10,000, 25,000, 50,000) that reverse out again suggest a loan or a transfer from another account propping up the balance. Revenue that runs consistently well ahead of deposits suggests sales that never become cash — either receivables that do not collect, or reported revenue that was never real. Deposits that exceed revenue without an obvious AR story raise the question of where that money came from, and so does a suspiciously clean December in a seasonal business.
05Convert the mismatch into written questions
A tie-out does not end a deal; it ends a conversation opener. Every unexplained variance becomes a numbered question for the seller: what was this 40,000 transfer in August, why do collections lag at 90 days when the industry pays at 45. A seller with a real business answers these from their books in a day. One without, stalls — and the stall is itself an answer you got for the price of a letter.
What a tie-out cannot tell you
A clean tie-out says the revenue happened; it says nothing about whether the expenses underneath it are complete, whether the add-backs on the teaser are recurring costs in disguise, or whether two of the vendors share an address with the owner’s family. It is one test, not a verdict — the first check worth doing, not the last one the file needs.
If you are inside a 60–90 day letter of intent and would rather have every test in the battery — the deposit tie-out, tax-return reconciliation, add-back challenge, related-party vendor matching, journal-entry spikes, customer concentration and the rest — run on this same evidence, that is exactly what Emerald Road Auditing does: a same-day, evidence-cited forensic pass at $1,450 per deal.
Emerald Road is built and operated end to end by AI agents on NanoCorp, which is why a test battery this wide stays affordable at deal sizes human firms won’t touch.