Which Trading Figures Will a Lender Accept When You Buy a Business?
Business Owners Finance
Adjusted profit · Lender assessment · Evidence
A business listed for sale may advertise adjusted profit, PEBITDA, SDE, EBPITD or adjusted EBITDA. The lender funding the purchase builds its own figure from the same accounts, and the two are rarely the same number. This guide covers which adjustments survive, which ones are reversed, what evidence proves them, and what happens to the deal when the lender's figure is lower.
Quick Answer
A lender does not simply adopt the adjusted profit in the sale listing. It rebuilds the figure from the accounts, usually accepting documented add-backs for the owner's wage and superannuation, interest on the seller's loans, depreciation, genuine one-off costs and identifiable private expenses.
It then deducts a market rate wage for the owner's role and market rent where the seller owns the premises, removes income that will not repeat, and generally accepts an adjustment only where the amount can be reconciled to lodged accounts or source records such as bank statements, payroll records, loan statements, leases or invoices.
If the seller says the current year is stronger than the last lodged year, current management accounts can support that case, but the lender will still want the run rate reconciled to BAS and bank activity rather than simply annualising a strong month or quarter.
Also called: add-backs, adjusted net profit, normalised earnings, EBITDA add-backs, PEBITDA, Seller's Discretionary Earnings (SDE), EBPITD.
Where you are in the deal
- Still screening the listing or information memorandumIf the listing leads with PEBITDA, SDE, EBPITD or adjusted profit, start with what that headline figure means to a lender, then check which add-backs survive the assessment.
- About to make an offerUse the seller evidence list before the finance and due diligence clocks start running.
- The latest lodged year looks weak but this year is strongerRead how current management accounts are tested before relying on an annualised run rate.
- The lender's figure came back below the seller's figureGo straight to what caused the gap and what can change next. A missing document and a genuine trading shortfall can produce the same borrowing result but require different responses.
- The figures now work and you are moving toward approvalUse the transaction sequence to keep finance, due diligence, valuation and contract deadlines in the right order.
Does a lender use PEBITDA, SDE or EBPITD from the sale listing?
Not automatically. PEBITDA, Seller's Discretionary Earnings (SDE), EBPITD, adjusted net profit and adjusted EBITDA are useful ways to present owner-adjusted earnings in a business-for-sale listing, but none is automatically the earnings figure an Australian lender will use. The lender still wants a bridge from the lodged accounts to the advertised number, then tests every add-back, every owner or family wage adjustment, the rent position and any income or cost that will change after settlement.
The labels matter because they tell you what the seller is trying to show, but the calculation behind them can vary. In particular, an owner-operator earnings figure can restore proprietor compensation to profit even though the business will still need somebody to perform that work after the sale. Treat the headline number as a starting point and ask for the reconciliation behind it before you use it to price the debt or the offer.
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| Figure in the sale material | What it is trying to show | What the lender still needs to do |
|---|---|---|
| PEBITDA | Proprietor's earnings before interest, tax, depreciation and amortisation: the business's earnings with the owner's own wage and benefits added back, widely used in Australian business-for-sale listings. | Ask for the exact bridge from the accounts, because the label itself does not tell the lender which costs were restored or which replacement costs still belong in the business. |
| SDE or EBPITD | Owner-operator earnings measures showing the total benefit available to one working proprietor. SDE, seller's discretionary earnings, is more common in American listings; EBPITD, earnings before proprietor's wages, interest, tax and depreciation, is the Australian equivalent. | Separate the owner's benefit from the business's maintainable earnings by testing proprietor wages, family labour, private costs and any work that still has to be paid for after settlement. |
| EBITDA or adjusted EBITDA | Earnings before interest, tax, depreciation and amortisation, sometimes with further seller-side adjustments added on top. | Verify each adjustment and remove or replace anything that is recurring, unsupported or different under the buyer. |
| Lender's maintainable earnings figure | The lender's own view of the cash flow available to support the acquisition debt. | Rebuild the number from source records, normalise owner and family labour and rent, remove non-recurring income, and apply the lender's own credit policy. |
Which add-backs will a lender accept when you buy a business?
A lender usually accepts the add-backs it can document: the outgoing owner's wage and superannuation, interest on the seller's own loans, depreciation, genuinely one-off costs and identifiable private expenses. It rebuilds the profit from the accounts itself, so the adjusted figure in the sale listing is where the assessment starts rather than where it finishes. The seller's figure is a selling document. The lender's figure is a repayment test, and the two are answering different questions about the same set of numbers.
The seller's figure usually arrives in the information memorandum, the sales document a business broker sends to interested buyers, or as a one-page schedule of add-backs. When a seller's accountant or broker presents an adjusted figure, they are restoring costs that they say belonged to the outgoing owner rather than to the business, so a buyer can see what the business might produce in someone else's hands. In this setting a lender add-back is simply a cost taken back out of the reported profit on that basis, and the result usually gets called adjusted net profit, or normalised earnings when the point being made is that unusual years have been smoothed out. You will also see EBITDA, which is earnings before interest, tax, depreciation and amortisation, and future maintainable earnings, which is a view of what the business can be expected to keep earning rather than what it earned last year. None of that is improper. A buyer cannot compare two businesses without some normalisation, and a seller who presents only the reported profit is understating what they own.
A lender is doing something narrower. It is not pricing the business; it is testing whether the business can pay a manager, pay its own costs and still service the debt that is about to sit on top of it. So it will accept some of those adjustments, make two significant ones in the other direction, and count only what it can verify against source records or independent records that reconcile to the accounts. That evidence filter is usually what moves the number most. The result is the figure the loan is sized against, whatever the listing says, and it is the same discipline whether the deal is a straight purchase funded as a business acquisition or a management buyout by the people already running it.
The table below sets out the lines that usually appear in a seller's adjusted figure, what each one actually is, how a lender is likely to treat it, and what it needs before it will accept it. It is the comparison that the scattered advice on this subject almost never makes in one place.
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| Adjustment | What it is | How a lender is likely to treat it | What it needs to accept it |
|---|---|---|---|
| Reported net profit | The profit the accounts show after every expense the business actually paid. | Starting point. The only line that needs no adjustment argument. | Lodged returns, ATO lodgment records and statements that reconcile to them. |
| Owner's wages and superannuation restored to profit | The outgoing owner's own pay and superannuation, treated as a cost that belonged to them rather than to the business. | Usually accepted, then replaced with what the role would cost at market rates. | Payroll records showing who was paid what, and a view of what that role pays in the industry and location. |
| Family wages or unpaid family labour | A spouse or relative is paid above or below a commercial rate, or performs real work without being paid for all of it. | Normalised to the commercial cost of the work that continues after settlement. Excess or genuinely private pay may be restored; unpaid or underpaid work may require a replacement-cost deduction. | Payroll and super records, duties and hours, evidence of the role actually performed, and whether the buyer still needs that work done. |
| Interest restored to profit | Finance costs on the seller's own borrowings, which the buyer will not inherit. | Usually accepted, because the buyer's own funding replaces it. | Loan statements identifying the facilities and the interest actually charged. |
| Depreciation and amortisation restored to profit | Non-cash write-downs of assets the business already owns. | Often accepted for a cash flow view, then weighed against what the business must spend to keep those assets working. | The asset register and depreciation schedule, plus what has actually been spent on replacement. |
| One-off or non-recurring costs restored to profit | Costs said not to repeat: a legal dispute, a flood repair, a project that was abandoned. | Accepted if documented and genuinely singular. Questioned where the same category appears every year. | The invoices or documents for the event, and enough years of accounts to show the category does not recur. |
| Private expenses run through the business restored to profit | Personal spending paid by the business: a vehicle, travel, a family phone plan. | Accepted if identifiable and documented. Discounted where the only evidence is a schedule prepared for the sale. | Transaction level evidence rather than a summary, and ideally the same treatment in the lodged returns. |
| Government support income left in profit | Grants or support payments received in a particular year. | Usually removed, because it will not recur for the buyer. | The remittance records and the year the income belongs to. |
| Market rate wage for the owner's role (lender deduction) | The cost of paying somebody to do the work the owner currently does. | Deducted by the lender, because the business has to be able to pay a manager and still service the debt. | Evidence of the hours and duties, and a market rate for the role. |
| Rent where the seller owns the premises (lender adjustment) | Rent charged to the business by the seller as landlord, often set for reasons that have nothing to do with the market. | Adjusted to market where the lease is changing, because the buyer's occupancy cost is what has to be serviced. | The lease or draft lease, and rental evidence for comparable premises. |
| Non-operating or one-off income left in profit | Income unrelated to trading: an asset sale, an insurance recovery, a contract that has since ended. | Removed, because it does not repeat in normal trading. | The document behind the receipt, and the trading history either side of it. |
The easiest way to see what that does to a deal is to run one set of accounts through both figures. The numbers below are invented to show the mechanism, not taken from any deal or lender.
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| Line | Seller's adjusted figure | Lender's figure |
|---|---|---|
| Reported net profit, including a $10,000 government grant | $150,000 | $150,000 |
| Owner's wage and superannuation restored | plus $95,000 | plus $95,000 |
| Interest on the seller's loans restored | plus $12,000 | plus $12,000 |
| Depreciation restored | plus $18,000 | plus $18,000 |
| Documented one-off legal cost restored | plus $8,000 | plus $8,000 |
| Government grant income removed | Not adjusted | less $10,000 |
| Market rate wage for the owner's role deducted | Not adjusted | less $85,000 |
| Rent brought to market on a new lease | Not adjusted | less $15,000 |
| Adjusted profit | $283,000 | $173,000 |
Illustrative arithmetic only. Every figure is invented to show how the adjustments stack up. None is a benchmark for wages, rent or profit, and the actual deductions are set deal by deal against the evidence.
In that example every add-back the seller claimed survived, and the lender's figure still came in $110,000 lower, because the lender made three adjustments the seller's schedule did not. The loan is sized on the $173,000. Nothing about the trading was wrong; the two figures were answering different questions.
Two structural notes follow from it. The first is that a business sold as a going concern carries its trading history with it, and the history is what the assessment runs on. The second is that adjustments and evidence travel together: an adjustment nobody can document is not a smaller adjustment, it is an adjustment that does not happen. The same logic applied to your own income, rather than the target business's, is covered in why a bank may not count your add-backs.
What happens if the lender's profit figure is lower than the asking price?
First work out why the lender's figure is lower. If an add-back failed because the evidence is missing, the answer may be to produce and reconcile the missing record. If the lender has identified a real ongoing cost or removed income that will not repeat, the gap is economic rather than documentary and the price, buyer contribution or deal structure may need to change.
Once the reason is clear, the funding gap has only a few places to land. It can land on the buyer as additional cash, which usually means a larger contribution than the deposit the buyer had planned for and is dealt with in the guide to funding a business purchase. It can be carried by the seller through vendor finance. Or part of the consideration can be made conditional on future performance, which is an earn-out and belongs with the questions about how the deal is structured as a share sale or an asset sale. Additional security may improve the lender's recovery position or change how the facility can be structured, but it does not turn unsupported profit into earnings and it does not repair a cash-flow shortfall by itself. Each route changes the risk and paperwork, so identify the rejected line before changing the structure.
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| Why the figures differ | What it usually means | What to do next |
|---|---|---|
| An add-back has no supporting document | The lender cannot verify the adjustment yet. | Ask for the invoice, payroll record, loan statement or other source document and reconcile it to the accounts before treating the earnings gap as permanent. |
| A cost described as one-off actually recurs | The seller's adjusted profit is removing a normal operating cost. | Use the lower maintainable figure when testing the debt and revisit the price or buyer contribution if the deal no longer works. |
| The owner's wage was added back in full | The lender still needs an allowance for the work that has to be done after settlement. | Evidence the actual duties and market replacement cost. If the role is genuinely unnecessary after the sale, prove why. |
| Related-party rent changes after sale | The historical accounts do not show the buyer's real occupancy cost. | Use the lease or draft lease and market rental evidence so the assessment is based on the cost the buyer will actually pay. |
| Current-year trading is stronger than the lodged year | The history and the present run rate are telling different stories. | Build a current trading pack that reconciles management accounts to BAS and bank activity, then find out how much weight the lender will give it. |
| The accepted earnings still do not support the price | The gap is no longer a documentation problem. | Test additional buyer equity, vendor finance, deferred consideration or a price renegotiation with the solicitor, accountant and lender involved in the structure. |
Does a rejected add-back mean the business is overpriced?
No. A credit assessment and a business valuation answer different questions. A rejected add-back can mean the evidence is incomplete, the expense really will continue under the buyer, or the lender is taking a more conservative view of maintainable earnings. What it does mean is that less debt may be supported by the same asking price, which is a reason to revisit the evidence and the structure rather than assume the valuation itself has been disproved.
What does a lender deduct from the seller's profit figure?
A lender commonly makes two deductions of its own: a market rate wage for the work the owner does, and market rent where the seller owns the premises. It also removes income that has nothing to do with trading, such as government support payments, asset sales and insurance recoveries.
The replacement wage is the one that surprises people, because the buyer often intends to do the work themselves and cannot see why they should be charged for a manager they are not going to hire. The reason is structural rather than personal. A lender is assessing a business, not a person, and the business has to be able to pay somebody to do that job and still meet the repayments, because the buyer may fall ill, take on another venture, or simply want a holiday. A business that only services its debt while the owner works in it unpaid is a business that services its debt out of the owner's labour. That is a real thing to buy, but it is not the same thing, and it is not what the credit assessment is measuring.
Rent works the same way. Where the seller owns the premises and charges the business a rent they set themselves, the accounts show an occupancy cost that was never tested against anything. On a sale, either the premises transfer with the business, which is a different transaction covered in buying a business with the property against buying it without, or a new lease is negotiated between parties who are now genuinely at arm's length. Either way the buyer's occupancy cost is the one that has to be serviced, so that is the one the assessment uses.
That raises the obvious question of how the market rate is set, and here the published Australian material is thinner than the confidence of the advice built on it.
Source note. The valuation profession's reference point for market rent is the International Valuation Standards definition, reproduced in the Australian Property Institute's guidance paper: the amount for which an interest should be leased at the valuation date between a willing lessor and a willing lessee, on appropriate lease terms, in "an arm's length transaction", after proper marketing, with both parties acting knowledgeably, prudently and without compulsion. Source: Australian Property Institute, AVGP 301 Rental Valuations and Advice version 2.0, tier 2 professional guidance, effective 1 July 2023, read live 22 September 2026. Qualifier: the paper states that a guidance paper does not direct that any particular process or method should or should not be used, so it is guidance rather than a mandatory standard, and it is not a rule any lender is bound by. Source note, what the guidance does not cover. That same paper carries no passage on rent between related parties, on a lessor who owns the premises their own business trades from, or on rent charged below market. We read its definitions and rent sections and searched the full paper for related party, related entity, below market and non-arm's length on 22 September 2026, and found nothing. Its companion paper, AVGP 304 Rent Determinations, which governs how a valuer settles a rent dispute under a lease, is silent on related-party rent as well; it directs the valuer to the lease terms and any retail leases legislation in the jurisdiction. Source: Australian Property Institute, AVGP 301 and AVGP 304 version 2.0, tier 2 professional guidance, both effective 1 July 2023, read live 22 September 2026. Qualifier: this is an absence in two papers, read on one date. It is not evidence that no Australian guidance anywhere addresses the question.We have set this out at length because of what it means for the figures circulating on this subject. There is no Australian standard that tells a lender how to calculate a replacement wage, and no Australian guidance paper that tells a valuer how to treat rent charged by a landlord to their own business. The sources that publish percentages and rules of thumb for either are advisory and valuation firms writing for their own clients, not bodies with any authority over how a credit assessment is done. So this page does not publish a benchmark for either adjustment, and the worked example above uses invented numbers for that reason: a real-looking number with nothing behind it would read as guidance and would be the least reliable thing on the page. What we can tell you is what the adjustment is for, what evidence settles it, and that it is settled deal by deal. The same caution applies to what a business is worth, which is a valuation question rather than a lending one, and to who funds the goodwill in the price, which sits in its own guide.
Will a lender deduct a wage if you work in the business yourself?
Usually yes, where the owner works in the business in a role that would otherwise be paid. The deduction is for what that role costs at market rates, not for what the outgoing owner chose to draw, and it is applied even when the buyer intends to do the work themselves. It is worth pricing this into the deal before you make an offer rather than discovering it when the assessment comes back, because it changes the amount of debt the same trading will support and therefore the cash you need to bring. If the business genuinely runs without an owner in it, that is a fact about the business you can evidence, and evidence is what moves it.
How is the market rate for the owner's role worked out?
It is evidenced rather than calculated, because no Australian rule sets it. The applicable modern award is the legal floor for employing somebody in the role, not the market rate for a manager; the market rate comes from salary surveys and advertised roles for that job in that industry and location. The owner's actual hours and duties decide which role, or which several roles, the business would have to pay for, and superannuation guarantee is added on top of the wage. Family members paid well above or below market for their work are adjusted the same way.
That is why a diary of what the owner actually does is worth more than an argument about the number. An owner who works sixty hours across the counter, the books and the ordering is replacing more than one wage; an owner who manages a trained team for twenty hours is replacing less. For the same question on a self-employed borrower's own home loan, rather than a business being bought, see how the owner's wage add-back works on a home loan.
What if the seller's spouse or family members work in the business?
The same commercial-cost test applies to family labour. If a spouse or family member is paid above market for a real role, the excess may be normalised out. If they are paid below market, or work unpaid, but the buyer will still need that work done, a lender can allow for the commercial cost of replacing it. If a payment is genuinely private and the role disappears on sale, it is easier to defend as an add-back. Payroll records alone are not enough: the useful evidence is who does what, for how many hours, what they are paid, and whether that work continues after settlement.
A seller's adjusted figure restores the owner's wage to profit, on the basis that the wage was the owner's own drawing rather than a cost of running the business. The buyer intends to work in the business themselves, so the logic looks sound to both of them. The lender's assessment puts a manager's wage back in anyway, because the question it is answering is not what the business earned for its owner, it is whether the business can pay somebody to do that work and still service the loan. Nothing about the trading has changed. The assessable figure has, and the loan is sized on the assessable figure. The buyer's options from there are the ordinary ones: contribute more cash, change the structure of the deal, or renegotiate the price against a figure the seller now has to argue with rather than assert.
Which documents does a lender use to verify the trading figures?
A lender starts with lodged tax returns and the ATO's record of them (a notice of assessment for an individual, or lodgment and assessment records for a company or trust, called ATO lodgment records below), then reconciles the accountant-prepared statements, activity statements and business bank statements around them. Interim management accounts and a seller's schedule of add-backs usually carry less weight because they cover unlodged periods or adjustments prepared for the sale and may not have been independently audited or reviewed. The question is not how much paper exists, but whether the figures reconcile across records.
A lodged tax return sits at one end: the business has reported the year to the revenue authority, and ATO assessment or lodgment records can evidence that process where they are issued or available. Bank statements sit alongside the file because the bank independently records money that actually moved, even though a bank statement cannot tell you why it moved. At the other end sit interim management accounts for an unlodged period and a schedule of adjustments prepared for the sale. Those documents can be useful, but they need reconciliation. Accountant-prepared financial statements sit in between, and they are widely misread: unless the engagement was an audit or review, their preparation does not mean the underlying records were independently tested.
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| Document | What it proves | What it does not prove | Who produces it |
|---|---|---|---|
| Company or trust income tax return | What the entity declared to the tax office for that year. | That the declared figure is the earnings a buyer inherits, because a return records the past under tax rules rather than trading capacity. | The business's accountant, lodged by or for the entity. |
| ATO lodgment records (notice of assessment for an individual) | That the relevant return or assessment is recorded with the tax office, and the assessed position where an assessment is issued. | Anything about the quality of the source records the return was built from. | The Australian Taxation Office. |
| Accountant-prepared financial statements | That a member of a professional body prepared statements from the information provided to them. | That the underlying records were audited or independently tested, unless the engagement says they were. | The business's accountant, from information the client supplied. |
| Interim management accounts | What the business's own bookkeeping shows for a period not yet lodged. | Anything a third party has seen, checked or accepted. | The business itself. |
| Business activity statements | What was reported for goods and services tax and related obligations, period by period. | Profit, because an activity statement reports turnover and tax obligations rather than earnings. | The business, lodged with the tax office. |
| Business bank statements | Money that actually moved, and when it moved. | Why it moved, or whether it was trading income at all. | The bank that holds the account. |
| Accountant's letter or certificate | Little. The accounting bodies' guidance is that a letter requested to facilitate finance is to be declined. | Capacity to repay, which is the lender's assessment to make and not the accountant's. | Usually nobody, because the accountant is expected to decline. The section on what an accountant can sign, below, sets out why. |
None of this is a due diligence checklist. Buying a business involves a great deal of checking that has nothing to do with a lender, and the Australian government material linked in the note above already does that job well. The question here is narrower: which of those documents changes what a credit assessment can accept. The sector specific versions of the same question are worth reading if they fit your deal, because the evidence that settles a trading figure differs by industry. We have written about how a hospitality trading history is tiered and about what a lender looks for in motel trading records. If you want the vocabulary itself, trading history is the term for the record, and the buyer's own income documents, which are a separate assessment from the target's, are covered in the income documents a self-employed buyer provides for their own side of the file.
What can an accountant sign for a lender?
Less than most buyers expect, and the limit is set by the accounting profession itself rather than by the lender.
Source note. The joint position of the Australian accounting bodies is that accountant's letters requested in order to facilitate a financing arrangement "are to be declined", because the credit assessment is the lender's responsibility and the lender carries its own licence obligations in making it. The same guidance records that where the lender subscribes to the Banking Code of Practice, asking for one cuts across the Code's undertaking not to ask a third party such as your accountant to "certify that you can repay the Loan". Source: CPA Australia, Chartered Accountants Australia and New Zealand and the Institute of Public Accountants, Accountant's letters, declarations and capacity to repay certificates, a toolkit for members, tier 2 professional bodies, first issued May 2023, updated December 2024 and revised again August 2026, read live 22 September 2026; clause 78 of the 2025 Banking Code of Practice checked separately at the Australian Banking Association on the same date. Qualifier: this is the professional bodies' position for their members, not a law, and an accountant may still provide factual information from records they hold when properly engaged to do so.The practical consequence is simple: do not build a timetable around a letter your accountant is not going to write. What an accountant can do is prepare or provide the financial information they hold, explain the basis on which statements were prepared, and confirm what was lodged. Those are records. A certificate that the buyer can afford the loan is a credit assessment, and the lender has to make that one itself.
From our broking, indicative
What we see on business purchase files we have placed, as at September 2026.
- The adjustments most often restored without much argument are the ones that already have a paper trail: the owner's own pay and superannuation, and interest on facilities the buyer will never inherit. Indicative, based on files Switchboard has placed, and it varies by lender.
- The adjustments most often made in the other direction are the two that change the buyer's own cost base: a wage for the work the owner does, and rent where the seller is also the landlord. Indicative, based on files we have placed, as at September 2026.
- The most common reason a business purchase file stalls, in our experience, is an incomplete set of accounts rather than a weak set. A year missing, statements that do not reconcile to the lodged returns, or a schedule of adjustments with nothing behind it will each stop an assessment that the trading itself would have supported. Indicative, based on files we have placed.
- Documents tend to be asked for in a settled order: lodged returns and ATO lodgment records first, then the accountant-prepared statements, then activity statements and bank statements covering the period since the last lodgement. Indicative, based on files we have placed, as at September 2026.
Indicative only, based on business purchase files Switchboard has placed, as at September 2026. This is not a quote, not an offer and not an indication of approval, and it is not accounting, taxation or valuation advice. Actual outcomes depend on lender policy, on the accounts in front of the credit team and on your circumstances at the time of application. Not financial advice.
A business trades from premises its seller owns, at a rent the seller set for their own reasons. On the sale the premises stay with the seller and a fresh lease is negotiated between parties who are now at arm's length. The seller's adjusted figure uses the old rent, because that is what the accounts show. The lender's figure uses the new one, because that is the occupancy cost the buyer will actually have to pay out of the same trading. What resolved it was documentary rather than argumentative: the draft lease and rental evidence for comparable premises put both sides on the same number before the valuation was ordered, rather than after it had been done on the wrong one.
Will a lender use current-year management accounts if the business is growing?
Yes, current management accounts can support a stronger current trading story, but they do not automatically replace the lodged history. The lender will want to see whether the year-to-date profit reconciles to BAS and bank activity, whether the stronger margin or revenue has a clear cause, and whether the improvement is likely to continue after the seller leaves.
This matters when the last lodged year is already old, the business has added a major contract, prices have changed, a weak period has rolled out of the comparison, or the seller is relying on an annualised current run rate to justify the asking price. The mistake is to treat a current P&L as if recency makes it independently verified. Recency helps. Reconciliation is what gives it weight, because the lender is trying to decide whether the stronger period belongs in the business's trading history or is only a short-lived change.
If the current year is materially stronger, send the evidence together
- Year-to-date profit and loss and balance sheet, preferably month by month rather than one cumulative total.
- BAS lodged since the last financial year, so reported turnover can be compared with the management accounts.
- Business bank statements for the same period, so the revenue and major outgoings can be reconciled to money that actually moved.
- The document behind the improvement, such as a new contract, price change, staff change or closure of a loss-making line, where that is what changed the run rate.
- A bridge from the last lodged year to the current run rate, showing what changed rather than asking the lender to infer it from two different totals.
The lender's treatment still depends on its own policy and the industry. A current run rate that reconciles cleanly is easier to assess than one supported only by a seller forecast.
Will a lender accept the seller's forecast?
A forecast can support the explanation of what happens next, but it does not turn an unverified run rate into historical earnings. A lender can consider projections and business plans, particularly where the buyer is changing the operation or a known contract affects future cash flow, but the forecast still has to sit beside evidence of what the business has actually been doing. The more the purchase price depends on future growth rather than demonstrated trading, the more important it is to separate the seller's case for value from the lender's case for repayment.
What should you ask the seller for before you make an offer?
Ask for the evidence behind every add-back before you make an offer, not after: lodged returns and ATO lodgment records, accountant-prepared statements, activity and bank statements, payroll records, the asset register, the lease, and the document behind each one-off item. Whatever the seller cannot produce is the part of the adjusted figure a lender is least likely to accept.
The reason to ask early is leverage. Before an offer, a missing document is a question about the price. After an offer with a finance condition running, the same missing document is a problem with a deadline attached. Most sellers' brokers expect this request and have much of it ready, because serious buyers ask for it.
Send this to the seller's broker
- Tax returns and ATO lodgment records for at least the last three financial years, which is the minimum the Business Queensland due diligence guide asks for as buyer due diligence.
- Accountant-prepared financial statements for the same years, and the name of the firm that prepared them.
- Business activity statements and business bank statements covering the period since the last lodged return.
- The schedule of add-backs, with the invoice, payslip or statement behind each line.
- Payroll records showing what the owner and any family members were paid, and what hours and duties the owner covers.
- The current lease, any draft lease for the buyer, and whether the seller or a related party owns the premises.
- The asset register and depreciation schedule, and what has actually been spent replacing equipment.
- Management accounts for the current year to date, ideally month by month and reconciled to BAS and bank statements, especially if the seller says current trading is stronger than the last lodged year.
This is a finance evidence list, not a full due diligence checklist; your solicitor and accountant will want more, and the document set can change depending on whether the deal is structured as a share sale or an asset sale. A seller who cannot supply an item has not necessarily done anything wrong, but that line of the adjusted figure is unlikely to survive the credit assessment.
Is there a minimum debt service coverage ratio in Australia?
No. No Australian regulator, code or industry body sets a minimum debt service coverage ratio for business acquisition lending. Each lender sets its own in credit policy, and any ratio you see quoted publicly is either a particular lender's setting or a practitioner's estimate. APRA's own practice guide for bank credit risk says lenders to small and medium businesses typically look at interest coverage, gearing and leverage against industry benchmarks, and it names no figure.
A coverage test is a simple mechanism, whatever it is called. The lender takes the earnings figure it has built and accepted, takes the repayments the proposed debt would require over the term it would run, and asks how much room sits between them. More room means the business can absorb a bad quarter, a rate movement or a customer leaving without missing a payment. Less room means it cannot. The test itself is not controversial. What is not published anywhere in Australia is the amount of room a lender must require.
Source note, what no rule sets. We went looking for an Australian regulator, code or industry body that sets a required coverage figure for business acquisition lending, and did not find one. The prudential standard that governs how an authorised deposit-taking institution manages credit risk, APS 220 Credit Risk Management, requires a credit assessment for a non-individual borrower to consider the borrower's historical financial position and future cash flows, its equity invested in the business, its sector and its expertise, and prescribes no coverage ratio for business lending. The one numerical serviceability setting it carries, a buffer of at least 3.0 per cent over the loan rate, applies to residential mortgage lending and is a different test, as does the debt-to-income limit APRA activated from February 2026, which caps new residential mortgage lending at six times income or more at 20 per cent of each bank's new loans (APRA information paper, 27 November 2025). The practice guide that does cover business lending, APG 220 Credit Risk Management, says that for small and medium enterprises a bank may analyse the balance sheet, profit and loss and cash flow statements, projections and business plans, that key areas of focus might include interest coverage, gearing and leverage compared with industry benchmarks, and that differences between industries should be taken into account; it sets no ratio. The prudential guidance people reach for most often, APG 223 Residential Mortgage Lending, is about lending secured by mortgages over residential property, and states that practice guides do not themselves create enforceable requirements. The Banking Code of Practice binds its subscribers to assess a small business loan application but sets no ratio either. Sources: Australian Prudential Regulation Authority, APS 220 Credit Risk Management, commenced 1 January 2023, APG 220 Credit Risk Management, August 2021, APG 223 Residential Mortgage Lending, December 2022, and the debt-to-income information paper of 27 November 2025, tier 1 regulator; Australian Banking Association, 2025 Banking Code of Practice, effective 28 February 2025, tier 2 industry code. All read live 22 September 2026. Qualifier: a search that did not find a published figure is not proof that none exists, and none of these documents is a lender's credit policy, which is where the figure a particular lender applies actually lives.Two cautions follow. The first is that the prudential guidance people quote at each other on this subject is a residential mortgage document, and using it to state a rule about a business acquisition is a category error rather than a conservative reading. The guide that does apply to business lending describes what a lender looks at and deliberately leaves the number to the lender. The second is about provenance: the coverage band quoted most often in search results, and in answers generated from them, is not set by any Australian regulator, code or industry body. It may well be a sensible number, but nobody here is bound by it, so treat it as a rule of thumb rather than a requirement. A broader survey of who does publish lending guidance in Australia sits in our guide to management buyout finance.
Source note. Credit provided for a business purpose sits outside the National Credit Code: the regulator's own guidance is that where an advance is not predominantly for personal, domestic or household purposes the loan is not regulated under the national credit legislation, and that loans to companies are not subject to it. Source: Australian Securities and Investments Commission, FAQs: does the credit legislation apply?, tier 1 regulator, page last updated 20 October 2020, read live 22 September 2026. Qualifier: the purpose test is applied to the particular loan, and getting it wrong is a matter for legal advice rather than a matter of preference.Is 1.25x or 1.5x a required DSCR for buying a business?
No. Neither 1.25x nor 1.5x is an Australia-wide regulatory minimum for a business acquisition loan. An individual lender may use a figure in that range, a different ratio or a different coverage measure altogether, but that is its credit policy rather than a rule set by APRA, the Banking Code or another Australian industry body. The useful question is therefore not only what ratio is being applied, but which earnings figure it is being applied to, because the accepted earnings can move far more than the ratio. If you want to know where a particular deal sits, the answer comes from the lender or a broker looking at the accounts, which is what the business lending side of the practice exists for.
Can two lenders use the same accounts and reach different serviceability results?
Yes. The source accounts can be identical while the credit outcomes differ because lenders can take different views of which add-backs are acceptable, how much weight to give current management accounts, the replacement cost of owner or family labour, the rent adjustment, the repayment term, the interest rate used in the test and the coverage policy itself. That is why a lender declining one seller adjustment is not proof that every lender must use the same earnings figure, and why the useful comparison is the full calculation rather than a headline DSCR.
How does a lender treat a bad or unusual trading year?
A lender asks what moved the number and for the documents that prove it: the asset register for an instant asset write-off year, remittance records for support income, monthly figures for one weak quarter. A year that reads oddly is not a dealbreaker. A year that reads oddly and cannot be explained with documents usually is.
The clearest worked example is a year in which the business claimed an immediate deduction for equipment. Taxable profit drops, the trading did not, and the accounts on their own cannot tell those two things apart.
Source note. The instant asset write-off allows an eligible business an immediate deduction for the business portion of an asset's cost in the year the asset is first used or installed ready for use, at a $20,000 limit for assets first used or installed ready for use on or after 1 July 2023, for businesses with aggregated turnover under $10 million using the simplified depreciation rules. Source: Australian Taxation Office, instant asset write-off, tier 1 government source, page last updated 28 August 2026, read live 22 September 2026. The $20,000 limit has since been made permanent from 1 July 2026 by the Treasury Laws Amendment (Tax Reform No. 2) Act 2026, which the ATO records as now law: ATO, $20,000 instant asset write-off, tier 1 government source, last updated 27 August 2026, read live 22 September 2026. Qualifier: this is the published tax rule, not tax advice, and eligibility turns on the particular business's own circumstances. Speak to the accountant who prepared the accounts.So a deduction of that kind is a timing and tax effect rather than a trading event, and it is separated out as a matter of course once the asset register and the invoice are in front of the credit team. The same logic runs through the other common distortions. Income from a government support programme lifts the year it lands in and will not repeat for the buyer, so it comes out. A quarter that went badly for a reason you can name sits inside a longer trend that monthly figures will show. A year of heavy capital spending distorts both profit and cash and needs its own schedule. A one-off legal or insurance event travels into the profit line and reads as trading until somebody produces the file behind it. The relief programmes of the pandemic years are one instance of this pattern rather than a category of their own, and they are receding out of the assessable window in any case.
There is one distortion that does not have a remedy. Where takings were never banked or never declared, they cannot be assessed, whatever they were worth to the seller. That is not a lender being difficult. There is no document that can be produced later to make an undeclared figure assessable, and a price built on one is a price the funding will not reach. It is better to find that out before the contract than after it.
Scroll the table sideways to see every column.
| What distorted the year | Why the accounts mislead on their own | What a lender usually asks for |
|---|---|---|
| An instant asset write-off year | A deduction claimed in full in the year the asset was first used pushes taxable profit down without the trading having changed at all. | The asset register, the invoice and the depreciation treatment, so the deduction can be separated from trading performance. |
| A period with government support income | Support received in one year lifts that year and will not repeat for the buyer. | The remittance records, and the trading years either side of it for comparison. |
| Takings without a documentary trail | Income said to exist but never banked or declared cannot be assessed, whatever the seller believes it is worth. | The lodged returns and the banked revenue. What is not there does not enter the assessable figure. |
| One weak trading quarter | A single soft period can pull a full year figure down while the underlying trend is intact. | Monthly or quarterly figures across several years, and the reason for the dip. |
| A year with heavy capital expenditure | Money spent on assets can sit in the accounts in ways that distort both the profit line and the cash position. | The capital spend schedule, and what the business has to keep spending to trade. |
| A one-off legal or insurance event | A cost or a recovery that belongs to one event travels into the profit line and reads as trading. | The documents behind the event, and the accounts either side of it. |
How does a lender assess a seasonal business?
By comparing like periods rather than treating one strong or weak month as a full-year run rate. Monthly or quarterly trading lets the lender see whether the latest result is normal for that part of the year, whether the business has enough cash through the quiet period, and whether an apparent improvement is simply the high season arriving. If the current year is being used to support a higher earnings figure, reconcile the same months against prior years and against BAS and bank activity rather than multiplying a short period by twelve.
How does a lender treat a year affected by a government grant?
Usually by taking the grant income out of the assessable figure and looking at the trading underneath it, because a payment the buyer will never receive is not earnings the buyer can service debt from. The evidence is straightforward: the remittance records showing what was received and when, and the trading years either side for comparison. The same treatment can cut the other way, in the buyer's favour, where a support programme masked a strong trading year by changing the pattern of costs, and it is worth flagging that in the file rather than leaving it to be discovered. Where a distorted year sits next to a valuation question, how a going concern valuation is put together is the better starting point, and where the distortion is in the price rather than the earnings, who funds the goodwill is the question to ask instead.
What happens after you find the business you want to buy?
The order that avoids surprises is: get the seller's figure, get the evidence behind it, have the figure read by a lender or broker, make an offer conditional on finance and due diligence, and only then run the formal application, valuation and approval. Buyers who reverse the middle steps are the ones who find out about the lender's figure with a deadline already running.
The usual order of a business purchase with finance
- Read the information memorandum and mark which lines of the adjusted figure are add-backs.
- Request the evidence list in the section above, before you make an offer.
- Have the adjusted figure pre-assessed, so you know which lines a lender is likely to question and roughly what contribution the deal may need.
- Make the offer conditional on finance and due diligence, with wording your solicitor settles.
- Lodge the formal application. The lender rebuilds the figure from the accounts and orders any valuation it needs.
- Work through the approval conditions, which commonly cover the lease, the security and the final documents.
- Settle, with the loan sized on the lender's figure rather than the listing's.
No lender publishes a standard timeframe for business acquisition finance, and none is promised here. In our experience deals that stall usually stall at step two, on a missing or unreconciled year of accounts.
What if you have already signed and the finance date is running?
Check the contract deadline immediately and treat it as separate from the lender's timetable. A finance application still being assessed does not itself extend a finance condition or a due diligence condition. Give the solicitor the actual status of the finance file, including any missing seller documents or unresolved valuation issue, so they can advise on the contract position and any extension request before the date passes. The finance problem and the contract problem can become two different problems if the deadline is ignored.
Where the next question usually goes
- How much can I borrow, and what deposit do I need?Loan to buy a business
- The lender's figure will not reach the priceVendor finance for the gap
- Buying the shares or the assets?Share sale or asset sale
- Most of the price is goodwillWho funds the goodwill
The figure in the listing and the figure in the credit assessment are built for different purposes, and the lender's accepted earnings are what the debt is tested against. A lender restores costs that genuinely stop after settlement where the evidence supports them, deducts a market rate wage for work the business still needs, brings related-party rent back to the buyer's actual occupancy cost, removes income that will not repeat, and tests current-year improvements against BAS, bank activity and the longer trading history. No Australian regulator, code or industry body publishes a universal business-acquisition coverage ratio, so any threshold applied to the deal is lender policy rather than an Australia-wide rule. If the lender's number is lower, first separate a documentation gap from a genuine trading gap: the first may be fixed with evidence, while the second may require more buyer cash, seller participation or a different price. If you have an information memorandum in front of you, get the seller's adjustments and their supporting records read before the offer or finance-condition clock starts, which is what the business lending side of what we do is for, and read the broader funding structure separately in the guide to funding a business purchase.
Key takeaway: assume the lender will rebuild the profit figure from the accounts, and price the deal on the figure you can evidence rather than the one in the listing.Frequently asked questions
Adjusted net profit is the reported profit of a business with certain costs taken back out, on the basis that they belonged to the outgoing owner rather than to the business itself. Typical items are the owner's own wage and superannuation, interest on the seller's borrowings, depreciation, genuinely one-off costs and private spending run through the business. It is a legitimate way to show what a business might produce in a new owner's hands, but it is prepared by the seller's side, and a lender will rebuild it from the accounts rather than adopt it.
There is no single published rule. The two Australian government guides for buyers set the benchmark: Business Queensland asks for a minimum of three years of tax returns, and business.gov.au suggests reviewing three to five years of financials. Lenders work from lodged returns and ATO lodgment records first, then the accountant-prepared statements, then activity and bank statements covering the period since the last lodgement. In our experience a missing or unreconciled year is one of the most common reasons a purchase file stalls.
No. Takings that were never banked or declared to the tax office cannot be assessed, whatever the seller says they were worth, because there is no third party record to verify them against and no document that can be produced later to make them assessable. If the asking price relies on undeclared cash, the funding will not reach it, and it is better to find that out before signing the contract than after.
Usually yes, where the owner performs a role that would otherwise be paid. The deduction is set at what the role costs at market rates rather than what the seller drew, and it applies even if you intend to do the work yourself, because the assessment is asking whether the business can pay a manager and still service the debt. Price it in before you make an offer: it changes the amount of debt the same trading will support, and therefore the cash you need to complete.
Yes, they can support the assessment, but current management accounts usually support rather than replace the lodged history. If the business is trading materially better than the last lodged year, expect the current profit and loss and balance sheet to be reconciled to BAS and business bank statements, and expect the lender to test whether the stronger run rate is maintainable rather than simply annualising a good month or quarter. Forecasts can support the explanation, but they do not turn an unverified run rate into historical earnings.
They can prepare and provide the financial information they hold, explain the basis on which statements were prepared, and confirm what has been lodged. What they will not do is certify that you can afford the loan. The joint position of the Australian accounting bodies is that letters of that kind requested to facilitate finance are to be declined, because the credit assessment is the lender's responsibility. Build your timetable around documents rather than around a certificate that is not coming.
There is no published minimum. No Australian regulator, code or industry body publishes a required coverage figure for business acquisition lending. The prudential standard on credit risk requires an assessment of the borrower's cash flows and position without prescribing a coverage ratio for business lending, and the guidance most often quoted at this question is a residential mortgage document that does not apply here. Individual lenders set their own thresholds in credit policy, they vary by lender and by industry, and the figure matters less than which earnings number it is being applied to.
Not automatically. These are seller-side or broker-side owner-earnings labels, not lender-approved earnings figures. A lender will want the reconciliation from the lodged accounts to the advertised number and will then test the add-backs, owner and family labour, rent and any income or cost that changes after settlement. Use the headline figure as a starting point, not as the amount the acquisition loan will necessarily be sized against.
The gap has to be funded, carried or renegotiated. Funding it means more cash from you than the headline deposit implied. Carrying it usually means vendor finance, where part of the price is paid to the seller over time. Renegotiating it means testing the price against an assessment the seller has to answer rather than an opinion. Before choosing, find out which line of the seller's adjusted figure was not accepted and whether the missing evidence exists, because a documentation gap and a trading gap look identical in the outcome and are completely different problems. The concept underneath all of this, and the reason the trading history travels with the sale, is set out in our note on going concern and in the goodwill entry.
Usually, yes. A finance condition gives you a set period to obtain approval on the lender's own figure, which is often lower than the listing's, and a way out if the funding does not reach the price. The wording, the length of the period and what happens if approval is not obtained are legal questions for your solicitor, and they differ between contract forms and states. Get the seller's evidence read by a lender or broker before the condition starts running, so the period is spent on the application rather than on chasing documents.
Look for the patterns a lender looks for. A one-off cost that appears in the same category every year is not one-off. An owner's wage added back with no market wage deducted for the work they do overstates the figure. Rent paid to the seller's own entity that sits below market will rise after the sale. Private expenses supported only by a schedule, rather than by invoices, are an argument rather than evidence. And any claim about cash takings that do not appear in the lodged returns cannot be counted. Ask for the document behind each line; the lines that come back without one are the lines to discount.
You may have remedies, but they are legal questions rather than finance ones. The Australian Consumer Law prohibits misleading or deceptive conduct in trade or commerce, and the sale contract may contain warranties about the accounts. Whether either helps depends on what was represented, in writing or otherwise, and what the contract says. Keep every document and figure the seller or their broker gave you, and speak to a solicitor promptly. The better protection is before the contract: a lender's assessment built from lodged returns tests the figures in a way a listing never does.
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