How to Read a Business Broker's Listing (And What They're Not Telling You)

Business brokers represent sellers, not buyers. The broker's commission is paid by the seller, and the broker's job is to present the business in the most favorable light that the facts will allow. The CIM (Confidential Information Memorandum) is a marketing document — accurate but selective.

What the CIM Contains

A well-prepared CIM typically includes: business overview and history, products and services description, financial summary (3 years), customer and revenue breakdown, employee summary, facilities description, asking price, and growth opportunities.

What it typically does not include: detailed reason for sale, customer concentration specifics, pending legal issues, lease terms, or key employee retention risks.

How to Read the Financial Summary

The revenue and SDE numbers in the CIM are presented on an adjusted or reconstructed basis — meaning add-backs have been applied. For every add-back, ask:

• Is this supported by the tax return, or only by the internal P&L?
• Has this expense appeared consistently over the past three years, or is it new?
• Is this a one-time expense, or does it recur in some form every year?

The Growth Opportunities Section

Read this section with healthy skepticism. It often reveals what the current owner has tried and failed at, or what systemic limitations prevent growth. Growth opportunities are not a reason to pay a premium. They are a reason to ask hard questions about why those opportunities have not been captured.

Questions to Ask the Broker

1. 1What is the actual reason for sale? Push past the official answer.
2. 2What percentage of revenue comes from the top three customers?
3. 3Are there any contracts expiring within 12 months of the proposed closing date?
4. 4What is the lease status — term remaining, renewal options, assignment clause?
5. 5Are there any pending or threatened legal proceedings?
6. 6What is the owner's role in day-to-day operations?
7. 7Are there employees who might not stay through a transition?
8. 8Has the business been listed before? Why did previous deals fall through?

What Tax Returns Reveal

Once you have signed an NDA, compare tax returns to the CIM. Look for:

• Revenue discrepancies between tax return and CIM (suggests cash sales or errors)
• Add-back verification (net income vs adjusted SDE)
• Balance sheet liabilities not mentioned in the CIM (unpaid taxes, outstanding loans)