Verified SDE Report: Sample Suds Laundry
Two-location laundromat and wash-and-fold · listed at $900,000
01Bottom line
What the documents support, in one page.
The seller's $260,000 SDE is not supported by the tax returns. The documents support $215,000, about 17% less. At the asking price that is 4.19× verified SDE, not the 3.46× the listing implies.
The deal still covers the proposed debt comfortably (year-1 DSCR 1.70× against a 1.25× screening minimum), but $90,000 of 2024 revenue on the P&L does not appear on the tax return, and the 2024 return has been amended. Resolve both before you sign an LOI.
What holds up
- Operating since 2009 with two leased locations and steady growth: P&L revenue up 5.6% in 2023 and 5.3% in 2024.
- 2023 revenue matches the tax return within 0.3%.
- Officer pay, depreciation, payroll, rent and interest match the returns exactly in both years.
- Debt is still covered 1.36× even if SDE falls 20% at today's rates.
What needs answers first
- 2024 revenue: $790,000 on the P&L vs $700,000 on the return.
- The 2024 return was amended from $72,000 to $82,000 of income. We need to know why, and whether the IRS has accepted it.
- 2023 "Other deductions" on the return are $62,000 higher than the P&L shows.
- The proposed seller note needs a $150,000 balloon payment at month 36.
02Documents reviewed
Every figure in this report comes from one of these documents. Nothing was taken from memory or market averages.
| # | Document | Period | Pages | How it was used |
|---|---|---|---|---|
| D1 | Broker listing | Current | 1 | Asking price, claimed SDE, FF&E |
| D2 | Confidential information memorandum (CIM) | 2023–2024 | 2 | Business overview, owner hours, summary financials |
| D3 | Profit and loss statement | Jan 2022 – Dec 2024 | 1 | Three full years, line by line |
| D4 | Profit and loss statement | Jan – Jun 2025 | 1 | Partial year: shown, kept out of averages |
| D5 | Form 1120-S business tax return | 2023 | 1 | Tax-basis income and deductions |
| D6 | Form 1120-S business tax return, original | 2024 | 1 | Original filing (superseded) |
| D7 | Form 1120-S business tax return, amended | 2024 | 1 | Corrected ordinary income, used for SDE |
| D8 | Legal settlement agreement and invoice | 2024 | 3 | Support for a one-time add-back |
| D9 | Seller's written note on meals | 2024 | 1 | Support for the personal share of meals |
Not provided: 2022 tax return, bank statements, IRS tax transcripts, leases, equipment list. See the seller questions in section 08.
03P&L vs tax return
Matched year by year, only where both documents cover the same full calendar year. Gaps over 10% are flagged.
2024 · P&L (D3) vs amended return (D7)
| Line | P&L | Tax return | Difference | Gap |
|---|---|---|---|---|
| Revenue | $790,000 | $700,000 | +$90,000 | +12.9% |
| Cost of goods sold | $64,000 | $64,000 | $0 | Match |
| Officer compensation | $75,000 | $75,000 | $0 | Match |
| Salaries and wages | $180,000 | $180,000 | $0 | Match |
| Rent | $99,000 | $99,000 | $0 | Match |
| Interest | $8,000 | $8,000 | $0 | Match |
| Depreciation | $52,000 | $52,000 | $0 | Match |
| All other expenses | $140,000 | $140,000 | $0 | Match |
| Net income | $172,000 | $82,000 | +$90,000 | +109.8% |
The whole 2024 gap is revenue. Expenses match line for line. Either $90,000 of income was not reported to the IRS, or the P&L overstates revenue. Lenders underwrite to the tax return, so this report does too until bank statements show otherwise.
2023 · P&L (D3) vs return (D5)
| Line | P&L | Tax return | Difference | Gap |
|---|---|---|---|---|
| Revenue | $750,000 | $748,000 | +$2,000 | +0.3% |
| Cost of goods sold | $62,000 | $62,000 | $0 | Match |
| Officer compensation | $72,000 | $72,000 | $0 | Match |
| Salaries, rent, interest, depreciation | $323,000 | $323,000 | $0 | Match |
| All other expenses | $135,500 | $197,500 | −$62,000 | −31.4% |
| Net income | $157,500 | $93,500 | +$64,000 | +68.4% |
In 2023 the return deducts $62,000 more than the P&L shows, so the P&L may leave out real costs. The return's statement for line 20 would show what the extra deductions are. Some may turn out to be add-backs, which would raise verified SDE.
Arithmetic check: the 2023 P&L expense lines add up to $530,000, but its total shows $530,500. The $500 difference is immaterial, but it means the P&L was edited by hand.
Periods not compared
| Period | Why it is kept apart |
|---|---|
| 2022 | P&L only. No 2022 tax return was provided, and lenders usually ask for three years. |
| Jan – Jun 2025 | Partial year (revenue $405,000). It is never averaged with full years. At this pace the year would reach $810,000 on a P&L basis, but seasonality is unknown without monthly figures. |
04Add-backs judged
An add-back counts only when a document supports it. Each one below has a verdict and the reason for it.
| Add-back | Year | On the books | Counted | Verdict | Why |
|---|---|---|---|---|---|
| Depreciation | 2024 | $52,000 | $52,000 | Accepted | Non-cash. Form 1120-S line 14 (D7) matches the P&L. |
| Depreciation | 2023 | $47,000 | $47,000 | Accepted | Line 14 (D5) matches the P&L. |
| Officer compensation | 2024 | $75,000 | $75,000 | Accepted | One owner's pay, line 7 (D7). SDE includes one owner-operator's compensation by definition. |
| Officer compensation | 2023 | $72,000 | $72,000 | Accepted | Line 7 (D5). |
| Legal settlement | 2024 | $6,500 | $6,500 | Accepted | One-time. The settlement agreement and invoice (D8) show a closed matter that will not recur. |
| Meals and entertainment | 2024 | $5,000 | $2,000 | Partly | The seller's note (D9) identifies $2,000 as personal. The remaining $3,000 is treated as a business cost the buyer will also have. |
| Interest expense | 2024 | $8,000 | $0 | Needs support | Usually an add-back, but only if the seller's debt is paid off at closing. No loan statement or payoff letter yet. Worth $8,000 once shown. |
| Interest expense | 2023 | $10,000 | $0 | Needs support | Same as 2024. Worth $10,000 once shown. |
| Repairs and maintenance | 2024 | $31,000 | $0 | Rejected | Recurs every year ($27,000, $30,000, $31,000 for 2022–2024). Keeping the machines running is an ordinary cost the buyer will pay too. |
Verified SDE build (tax-return basis)
| Line | 2023 | 2024 | Source |
|---|---|---|---|
| Ordinary business income | $93,500 | $82,000 | D5, D7 line 22 |
| + Depreciation | $47,000 | $52,000 | Line 14 |
| + Officer compensation | $72,000 | $75,000 | Line 7 |
| + Legal settlement (one-time) | — | $6,500 | D8 |
| + Personal share of meals | — | $2,000 | D9 |
| Verified SDE | $212,500 | $217,500 | |
| Two-year average used in this report | $215,000 | ||
| If the interest add-back is supported (average $224,000) | $222,500 | $225,500 | |
| Same add-backs on the 2024 P&L (not used; includes the $90,000 gap) | — | $307,500 |
The listing's $260,000 can't be rebuilt from either source: it sits between the tax-return figure ($217,500) and the P&L figure ($307,500). Ask the broker for the calculation behind it.
05Every number sourced
The figures that drive the conclusions, with the exact place each was read. Your lender can check any of them in seconds.
| Figure | Value | Document | Location |
|---|---|---|---|
| Asking price | $900,000 | D1 Listing | "Asking Price" |
| Claimed SDE | $260,000 | D1 Listing | "Cash Flow (SDE)" |
| Owner's hours | ~20 hrs/week | D2 CIM | Page 1, overview |
| Revenue 2024, P&L | $790,000 | D3 P&L | Page 1, "Total Income", Jan–Dec 2024 |
| Revenue 2024, return | $700,000 | D7 1120-S (amended) | Page 1, line 1a |
| Net income 2024, P&L | $172,000 | D3 P&L | Page 1, "Net Income" |
| Ordinary income 2024, original | $72,000 | D6 1120-S | Page 1, line 22 (superseded) |
| Ordinary income 2024, amended | $82,000 | D7 1120-S (amended) | Page 1, line 22 |
| Other deductions 2024 | $140,000 | D7 1120-S (amended) | Page 1, line 20 (was $150,000) |
| Revenue 2023, return | $748,000 | D5 1120-S | Page 1, line 1a |
| Other deductions 2023 | $197,500 | D5 1120-S | Page 1, line 20 |
| Ordinary income 2023 | $93,500 | D5 1120-S | Page 1, line 22 |
| Repairs 2022 / 2023 / 2024 | $27k / $30k / $31k | D3 P&L | Page 1, "Repairs and Maintenance" |
| Revenue Jan–Jun 2025 | $405,000 | D4 P&L | Page 1, "Total Income" |
In your report, each figure links to its page so you can see the original line highlighted.
06SBA financing check
The buyer's proposed structure, then two alternatives, all tested on verified SDE of $215,000. Screening only: your lender makes its own decision.
Sources and uses · as proposed
| Uses | Amount |
|---|---|
| Purchase price (includes $180,000 FF&E) | $900,000 |
| Working capital | $30,000 |
| Closing costs | $25,000 |
| SBA guaranty fee (financed) | $19,005 |
| Total | $974,005 |
| Sources | Amount |
|---|---|
| Buyer cash (10.3%) | $100,000 |
| SBA 7(a) loan · 10.5%, 10 years | $724,005 |
| Seller note · 6%, interest-only, 3 years | $150,000 |
| Total | $974,005 |
Three structures compared
| A · As proposed | B · Seller note on standby | C · Offer at $820,000 | |
|---|---|---|---|
| Price | $900,000 | $900,000 | $820,000 |
| SBA loan, incl. fee | $724,005 | $724,005 | $639,386 |
| Seller note terms | IO 3 yrs | 24 mo standby, then 5 yrs | IO 3 yrs |
| Buyer cash at closing | $100,000 | $100,000 | $100,000 |
| Monthly payments, year 1 | $10,519 | $9,769 | $9,378 |
| Year-1 DSCR | 1.70× | 1.83× | 1.91× |
| Lowest DSCR, years 1–5 | 1.70× | 1.37× (years 3+) | 1.91× |
| Cash flow after debt, year 1 | $88,768 | $97,768 | $102,469 |
| Balloon | $150,000 at month 36 | None | $150,000 at month 36 |
| Price ÷ verified SDE | 4.19× | 4.19× | 3.81× |
Cash flow after debt is before the buyer's income taxes and any equipment replacement. Balloon payments are shown separately and never counted inside DSCR. In B, interest accrues during standby, so the note grows to $169,074 before payments of $3,269 a month begin.
Sensitivity · structure A
| SDE \ rates | −1 pt | As assumed | +1 pt | +2 pts |
|---|---|---|---|---|
| −20% $172,000 | 1.43× | 1.36× | 1.30× | 1.24× |
| −10% $193,500 | 1.61× | 1.53× | 1.46× | 1.39× |
| Verified $215,000 | 1.79× | 1.70× | 1.62× | 1.54× |
| +10% $236,500 | 1.97× | 1.87× | 1.78× | 1.70× |
Red marks coverage below the 1.25× screening minimum. Break-even SDE (cash flow just covers debt service) is $126,232, 41% below verified SDE.
Screening checks
| Check | Assumption | This deal (A) | Result |
|---|---|---|---|
| Debt coverage | At least 1.25× | 1.70× | Passes |
| Equity injection | At least 10% of project cost | 10.3% | Just passes |
| Loan term, business acquisition | Up to 10 years | 10 years | Passes |
| Seller note counted as equity | Only on full standby | Not counted here | n/a |
| Seller note balloon | Refinance or pay from reserves | $150,000, month 36 | Plan needed |
SBA assumptions are editable screening values checked November 8, 2026 against SBA Information Notices 5000-881797 (FY 2027 fees) and 5000-880695 (SOP 50 10 8.1). Guaranty fee: 3.5% of the guaranteed portion (75% of the loan). The 10.5% rate is the buyer's assumption; most 7(a) loans are variable. Confirm every term with your lender.
07Risks and what they could cost
Ranked by how much each could change the price or the loan.
| Risk | Evidence | Effect if it goes wrong | Severity |
|---|---|---|---|
| Unreported or overstated revenue | 2024 P&L revenue $90,000 above the return (section 03) | If the P&L is wrong, nothing changes. If the cash is real but unreported, a lender still won't count it, and it is a legal risk for the seller. | High |
| Amended 2024 return | Income changed from $72,000 to $82,000 (D6 → D7) | If the amendment isn't filed or accepted, 2024 SDE drops to $207,500 and the average to $210,000 (DSCR 1.66×). | Medium |
| Seller note balloon | $150,000 due at month 36 | The buyer would need to refinance or find $150,000 in year 3, more than one year of cash flow after debt. | Medium |
| Equipment age | Repairs rising each year; no equipment list provided | Replacing machines is not in these numbers and would reduce the buyer's cash flow. | Medium |
| Leases | "Leased with renewal options" (D2); terms not provided | Rent was 12.5% of P&L revenue in 2024. A rent increase at renewal comes straight out of SDE. | Medium |
| Owner transition | Owner works ~20 hrs/week (D2) | Low dependence on the owner. The buyer still needs a transition period and introductions to commercial accounts. | Low |
08Questions for the seller
Ready to send to the broker before an LOI. Each one comes from a finding above.
- 2024 revenue. Please explain the $90,000 difference between P&L revenue ($790,000) and the 2024 return ($700,000). Please share 2024 bank statements for both locations and card-processor statements.
- Amended return. Why was the 2024 return amended, and when was it filed? Please authorize IRS tax transcripts (Form 4506-C) for 2023 and 2024.
- 2023 other deductions. Please send the line 20 statement for 2023. The return deducts $62,000 more than the P&L shows.
- 2022. Please send the 2022 business tax return so the lender has three years.
- Listing SDE. How was the $260,000 SDE in the listing calculated? Please send the add-back schedule.
- Debt. Which loans does the interest expense relate to, and will they be paid off at closing? Please send current statements.
- Cash handling. How is coin and card revenue from the self-service machines collected, counted and deposited?
- Equipment. Please send a list of all machines with make, age and repair history, and any planned replacements.
- Leases. Please send both leases with current rent, renewal terms, escalations and assignment requirements.
- Monthly results. Please send monthly P&Ls for 2024 and 2025 to date, to show seasonality.
- Commercial accounts. How many are there, what share of revenue do they bring, and are any under contract?
- Utilities. Utilities rose from $88,000 to $95,000. Are any rate increases scheduled?
- Seller financing. Would you extend the note to remove the year-3 balloon, or accept standby terms if the lender requires them?
- Transition. What do you do in your 20 hours a week, and how long a transition will you provide?
09How this report was prepared, and its limits
What we did
Read every document, recorded each figure with its page and line, recalculated the totals, matched full calendar years only, judged each add-back against its support, and ran the financing with the buyer's terms and current SBA screening assumptions.
What we didn't do
We did not audit the business, contact the seller or IRS, inspect equipment, or compare the price with sold-business data. This is educational analysis of the documents provided. It is not accounting, tax, legal, lending or investment advice, and it is not a quality-of-earnings report.