Preparing Your Business for Sale: Cleaning Up Your Financials

Financial transparency and accuracy are critical to a successful business sale. Buyers want confidence in what they’re purchasing, and the best way to provide that assurance is by presenting clean, organized, and verifiable financial records. In this part, we’ll cover key steps to ensure your financials stand up to scrutiny.

Get Your Books in Order

Many small business owners manage their books for tax minimization rather than showcasing profitability. While this strategy may reduce your tax burden, it can negatively impact your business valuation. Ensure your financials accurately reflect the true earnings potential of your business.

• Work with an accountant to prepare accurate, up-to-date financial statements.

• Reconcile all accounts, including outstanding payables and receivables.

• Ensure tax returns align with financial statements.

• Address any outstanding tax liabilities or legal financial issues.

Adjust for Owner Discretionary Expenses

Many business owners blend personal expenses with business expenses, making it difficult for buyers to understand the true profitability of the business. Work with your CPA or business advisor to recast financial statements by identifying and adjusting for discretionary expenses, such as:

• Excessive owner salary or benefits

• One-time or non-recurring expenses

• Non-business-related costs

• Owner-specific perks like vehicle leases or memberships

Maximize Profitability

Buyers want to see a history of strong financial performance. If possible, implement strategies to increase profitability before selling, such as:

• Reducing unnecessary expenses

• Improving pricing strategies

• Enhancing operational efficiencies

• Expanding high-margin product or service lines

• Renegotiating vendor contracts to improve margins

Have Financial Documents Ready

Buyers and their advisors will request several years of financial records, so be prepared with:

• Profit & loss statements (last three to five years)

• Balance sheets

• Tax returns

• Customer and vendor contracts

• Detailed records of assets and liabilities

• Cash flow statements

A clean set of financials can significantly impact the price buyers are willing to pay. In our next part, we’ll explore the importance of being clear on your intentions and goals when selling your business.

Thinking about selling your business or interested in a preliminary valuation of your business, send me an email at mike@mikegorrasi.com