Clean, well-organized financials are essential to a successful business sale. Buyers, lenders, and investors need confidence in the numbers before moving forward.
Preparing your financials early reduces delays, increases buyer confidence, and improves valuation – all lending to a smooth transition to the buyer and graceful exit for yourself.
Financial Documents Buyers Expect
Buyers typically request:
- Last 3 years of profit & loss statements
- Balance sheets
- Business tax returns
- Current year-to-date financials
- Documentation for owner add-backs
Understanding Add-Backs
Add-backs adjust owner-specific expenses to show true cash flow. They are an amount of money drawn from the business for the owner’s benefit, but can be “added back” to the P&L Statements because once ownership changes, these amounts can stay within the business – if the buyer chooses. Common examples include:
- Owner salary above market
- Personal vehicle expenses
- One-time or non-recurring expenses
- Meals and Entertainment
Clear documentation is critical to justify these adjustments.
Separate Personal and Business Finances
Mixing personal expenses into business accounts complicates due diligence and reduces buyer confidence. Clean separation is essential.
Improve Financial Transparency
- Reconcile accounts monthly
- Use consistent accounting methods
- Work with a CPA or bookkeeper if needed
How a Business Broker Helps
A business broker assists by:
- Normalizing financials
- Preparing documentation
- Developing Valuations
- Understanding Industry Norms and Multipliers
- Anticipating buyer questions
- Managing due diligence efficiently
Keep your records up-to-date and organized
Preparing your financials well in advance leads to faster sales and better outcomes. Whether you plan to sell soon or years from now, proactive preparation is key. Buyers will want to see a full picture of the businesses financials during Due Diligence. By having all records ready, you will reduce the time needed for Due Diligence and avoid potential deal cancellations.
We’ve seen a surge in buyer demand. Be ready for your sale so you don’t miss any opportunities when they present themselves.
Curious what your business might be worth?
Request a Free Confidential Business Valuation today.