As investment bankers, we know that a successful business sale requires more than just finding the right buyer—it demands meticulous preparation and especially financial preparation to maximize valuation, instill buyer confidence, and ensure a smooth transaction. One of the most critical yet often overlooked components of exit planning is financial statement preparation and accounting clean-up.
Buyers conduct extensive financial due diligence, and any inconsistencies or lack of clarity can lead to price reductions, extended deal timelines, or even a failed transaction. To avoid these pitfalls, sellers must ensure their financials are accurate, GAAP-compliant, and structured in a way that clearly reflects the company’s true earnings power.
As part of our advisory role, we facilitate and oversee this entire process, coordinating with external accountants and internal finance teams to ensure financials are ready for buyer scrutiny. Below are key financial preparation steps that every seller should undertake before going to market.
Balance Sheet Review: Ensuring Financial Accuracy and Credibility
A clean, reconciled balance sheet is fundamental to earning buyer confidence. We guide sellers through:
- Reconciling all significant balance sheet accounts to eliminate errors and discrepancies.
- Addressing any unreconciled accounts—simple issues can be resolved immediately, while complex matters should be flagged for resolution by financial professionals.
- Reformatting the balance sheet and chart of accounts to align with customary GAAP presentation for buyer familiarity.
- Making necessary reclassification journal entries to ensure correct categorization of assets, liabilities, and equity.
An unorganized or inaccurate balance sheet raises red flags for buyers, increasing perceived risk and reducing valuation multiples. As investment bankers, we work closely with financial teams to ensure all balance sheet items are properly categorized and justified.
Income Statement Review: Presenting True Profitability
A well-structured income statement is critical for demonstrating profitability and operational efficiency. To present a clear and compelling financial story, we advise sellers to:
- Standardize income statement presentation using the widely accepted format:
Sales – COGS = Gross Profit – SG&A Expenses = Net Income. - Analyze COGS classifications to ensure direct and indirect costs are correctly allocated.
- Reformat the chart of accounts to clearly separate operating expenses from cost of goods sold.
- Make reclassification journal entries, particularly shifting expenses from SG&A to COGS where appropriate.
- Prepare an Adjusted EBITDA schedule, identifying add-backs such as non-recurring expenses, discretionary owner costs, and other EBITDA adjustments to reflect normalized earnings.
- Define and document a revenue recognition policy, ensuring consistency in revenue reporting.
From an investment banking perspective, Adjusted EBITDA is one of the most scrutinized metrics in M&A transactions, as buyers use it to assess valuation. We help sellers build a defensible Adjusted EBITDA schedule to justify a higher valuation and mitigate buyer pushback.
Chart of Accounts & Gross Profit Analysis: Structuring Data for Buyer Due Diligence
A poorly structured chart of accounts can lead to buyer confusion and protracted due diligence. We work with sellers to:
- Reorganize and edit the chart of accounts to align with buyer expectations and industry norms.
- Segment gross profit reporting by key metrics (e.g., client, product, service line, employee), where possible, to provide granular profitability insights.
- Develop subsidiary gross profit reports if needed, ensuring financial data is clear and supports valuation discussions
By optimizing how financial data is structured, we ensure that buyers can quickly understand and validate financial performance, increasing deal momentum.
Payroll, Fixed Assets & Reporting: Strengthening Financial Integrity
Financial integrity is a critical factor in maintaining buyer confidence. We help sellers:
- Ensure payroll is accurately recorded in the income statement to reflect true labor costs.
- Verify fixed asset documentation, ensuring proper depreciation schedules and asset categorization.
- Formalize the journal entry process to create a reliable audit trail.
These steps reduce due diligence surprises and protect sellers from post-transaction disputes over financial misstatements.
Standardized Financial Reporting Package: Preparing for Buyer Review
To streamline due diligence, we help sellers develop a comprehensive financial reporting package, including:
- A financial narrative summarizing key performance trends.
- GAAP-compliant financial statements (Balance Sheet, Income Statement, Cash Flow Statement).
- A gross profit report (if applicable) for added transparency.
- Reconciliations for key balance sheet accounts, ensuring financial accuracy.
We ensure that all reports are buyer-ready, reducing back-and-forth during due diligence and reinforcing credibility.
Monthly Closing & Financial Communication: Maintaining Financial Discipline
Buyers prefer businesses with disciplined financial reporting. To maintain consistency and reliability, we advise sellers to:
- Implement a structured monthly closing process, ensuring that all adjusting and reclassification journal entries are applied to the current period without restating prior months.
- Communicate financial processes effectively to bookkeepers/controllers to ensure a seamless transition post-sale.
By establishing financial discipline, sellers demonstrate operational stability, increasing attractiveness to buyers.
How Falcon Capital Partners Adds Value to This Process
Financial preparation is one of the most critical value-enhancing steps in a business sale. As investment bankers, we:
- Oversee and coordinate the financial clean-up process, working with internal and external accountants to ensure financial statements meet buyer expectations.
- Help sellers build a defensible Adjusted EBITDA schedule, ensuring that profitability is presented in the best possible light.
- Assist in financial reformatting, ensuring reports align with industry standards and M&A best practices.
- Create required financial schedules and views buyers always request.
- Act as a buffer between buyers and sellers during financial due diligence, anticipating and addressing buyer concerns proactively.
By taking a proactive approach to financial preparation, we help sellers increase valuation, accelerate the deal process, and reduce risk of deal failure.
A Strong Financial Foundation Maximizes Value
A successful exit strategy begins long before a buyer is at the table. By ensuring that financial statements are clean, accurate, and properly structured, sellers can:
- Increase valuation multiples by presenting strong financials.
- Reduce buyer scrutiny and negotiation leverage by eliminating accounting inconsistencies.
- Speed up the due diligence process by providing clear and standardized financial reports.
As investment bankers, we don’t just broker deals—we guide sellers through every stage of exit planning, ensuring they are positioned for the best possible outcome.
If you’re considering a sale, now is the time to start preparing your financials. A well-prepared seller is a well-paid seller.
Thinking about selling your business? Let’s discuss how we can help optimize your financials and maximize your exit.
