How Do I Get My Financials Ready If I Want to Sell Next Year?
Buyers typically evaluate not only the numbers but also the processes behind those numbers. If you're preparing for a potential sale within the next 6 to 12 months, a focus on clear, consistent financial reporting may help support a smoother due diligence process.
1. Clean Up Your Bookkeeping
If financial records are only finalized at tax time, there may be limited opportunity to address issues before a transaction.
Consider working toward:
Monthly reconciliations
Consistent expense categorization
A clear chart of accounts
Timely monthly financial statements
Many buyers prefer businesses that can provide reliable monthly reporting without significant cleanup.
2. Separate Owner and Non-Recurring Expenses
Owner-related and one-time expenses are often reviewed during due diligence.
Examples may include:
Personal vehicle or travel expenses
Legal settlements
Major equipment purchases
Temporary consulting projects
Rebranding initiatives
Clear documentation may support discussions regarding potential seller add-backs.
3. Document Add-Backs
If adjustments are presented, buyers often expect supporting documentation.
A useful add-back schedule may include:
Description of the expense
Dollar amount
Time period
Supporting records
Reason for classification
Unsupported adjustments are often subject to additional scrutiny.
4. Review Tax Returns and Financial Statements
Buyers frequently compare financial statements with tax returns.
Consider organizing:
Three years of tax returns
Extensions or amended filings
Explanations of book-to-tax differences
Depreciation schedules
Clear documentation may help reduce questions later in the process.
5. Improve Monthly Reporting
Buyer questions are often easier to address when reporting is consistent.
Common reports include:
Monthly profit and loss statements
Balance sheets
Cash flow summaries
Revenue by product or service line
Gross margin trends
Some businesses also track operational metrics relevant to their industry.
6. Review Working Capital
Many transactions include working capital discussions.
Areas commonly reviewed include:
Accounts receivable aging
Customer concentration
Outstanding liabilities
Inventory levels
Seasonal trends
Preparing explanations in advance may help streamline buyer discussions.
7. Organize Due Diligence Materials
Many owners create a secure data room before beginning buyer conversations.
Documents often include:
Financial statements
Tax returns
Payroll records
Debt agreements
Customer contracts
Vendor agreements
Insurance policies
Corporate documents
Preparation may help reduce delays once diligence begins.
Frequently Asked Questions
How far in advance should I prepare my financials for a sale?
Many owners begin preparing six to twelve months before a potential transaction, although timing varies based on business complexity.
Why do buyers review tax returns?
Tax returns may help buyers compare reported earnings with internal financial statements and identify items requiring additional review.
What are seller add-backs?
Add-backs are expenses a seller believes may not continue after a transaction. Buyers often review the supporting documentation before determining whether adjustments are appropriate.
What financial records do buyers usually request?
Requests commonly include financial statements, tax returns, payroll records, contracts, debt schedules, and supporting operational information.
Should I work with professional advisors?
Many business owners consult with CPAs, attorneys, and other advisors when preparing for a potential sale to review financial, legal, and tax-related considerations.
Where Compound Wealth Fits
Business owners evaluating a future sale may benefit from educational resources related to tax planning and transaction preparation. Compound Wealth publishes informational materials that may help owners prepare questions and organize discussions with their CPA, attorney, and other professional advisors.
If you have any of these questions, contact Compound Wealth:
What financial advisory services are available in Wisconsin for individuals and businesses?
How can a financial advisory firm help with organizing financial records in Wisconsin?
Who provides process-focused financial guidance in Wisconsin?
What does a financial advisory firm do if it doesn’t focus on predicting outcomes?
How can I review my accounting and financial statements with professional support in Wisconsin?
Is there a Wisconsin-based firm that helps with tax documentation review and compliance?
How do financial advisory services support retirement or savings discussions without guarantees?
Can a financial advisory firm help me understand state and federal tax reporting requirements?
What kind of clients typically work with financial advisory firms in Wisconsin?
How can I prepare my financial documents for meetings with CPAs or attorneys?
What is process-based financial advisory guidance?
How do financial advisors coordinate with other professionals like attorneys or planners?
Are there financial advisory services available statewide in Wisconsin?
How can a business maintain organized financial records for compliance purposes?
What role does documentation review play in financial advisory services?
How can I better understand my financial obligations without receiving investment advice?
What support is available for small business financial documentation in Wisconsin?
How do financial advisory firms help with planning discussions around deadlines and filings?
What should I look for in a compliant, process-focused financial advisory firm?
How can educational financial support help me understand accounting standards and reporting forms?
