Selling a business is a significant financial and strategic decision. Whether you’re transitioning into retirement, shifting industries, or pursuing a new venture, proper financial preparation can directly affect the valuation, marketability, and success of your business sale.
This guide outlines the key steps to prepare your business financials before listing it for sale, helping you attract qualified buyers and facilitate a smooth due diligence process.
1. Organize Historical Financial Records (3–5 Years Minimum)
Buyers and brokers will typically request at least 3 years of financial data — ideally 5 — to assess stability and trends. Make sure you have:
- Income statements (Profit & Loss)
- Balance sheets
- Cash flow statements
- Tax returns
- General ledgers and bank statements
Accuracy and transparency are essential. Ash CPA helps sellers clean and standardize financial reports to align with buyer expectations and brokerage requirements.
2. Recast Financials to Show True Profitability
Small business financials often include discretionary expenses (e.g., owner’s salary, vehicle use, travel). Recasting adjusts for these items to reflect the actual earnings potential of the business.
This process may involve:
- Removing one-time or non-operational expenses
- Adjusting for owner-specific costs
- Normalizing salaries and rent
AW Business Brokers uses recast financials to create accurate representations of business performance and to support fair market valuation.
3. Review Key Financial Metrics and Ratios
Buyers often look for specific performance indicators, such as:
- Gross and net profit margins
- Revenue growth rate
- Customer acquisition cost (CAC) and customer lifetime value (LTV)
- Debt-to-equity ratio
- Current ratio (short-term liquidity)
Reviewing these metrics in advance helps identify any areas of concern and allows time to address them before listing the business.
4. Separate Personal and Business Finances
If personal expenses are intermingled with business accounts, this can complicate due diligence and reduce buyer trust. Ensure:
- All personal expenses are removed from the books
- Business accounts are clearly separated
- Payroll and vendor payments are documented appropriately
Buyers want a clean financial picture that demonstrates organizational maturity.
5. Prepare Supporting Documents
In addition to financial statements, buyers may request:
- Lease agreements
- Loan documents
- Licenses and permits
- Inventory lists and equipment depreciation schedules
- Employee contracts and benefits breakdown
- Client or supplier agreements
Having these documents organized and ready shows professionalism and reduces delays during the transaction.
6. Conduct a Preliminary Valuation
Before entering the market, sellers should have a clear understanding of their business’s worth. This includes:
- Tangible assets (equipment, property, inventory)
- Intangible assets (brand value, goodwill, intellectual property)
- Adjusted EBITDA or SDE (Seller’s Discretionary Earnings)
AW Business Brokers and Ash CPA collaborate with sellers to provide realistic valuations based on industry standards, buyer trends, and financial fundamentals.
7. Address Any Outstanding Liabilities
Unresolved debts, tax issues, or legal disputes can delay or derail a business sale. Before listing your business:
- Pay off or restructure outstanding loans if possible
- Resolve open tax matters
- Ensure all licenses and registrations are up to date
- Disclose liabilities transparently during the process
Addressing these issues in advance improves deal structure flexibility and negotiation outcomes.
8. Work with a Broker and CPA Early in the Process
Many business owners wait too long to consult professionals. In reality, involving a broker and CPA 6–12 months before listing offers several advantages:
- Time to optimize financials and increase valuation
- Guidance on how to position the business for sale
- Support for preparing documents and answering buyer questions
- Reduced legal and financial risk during the transaction
AW Business Brokers specializes in managing the sale of small to mid-sized businesses, offering valuation, marketing, and deal structuring services. Ash CPA ensures that the financials behind the business are clear, clean, and aligned with buyer expectations.
