Thinking about selling your business? Get ready now.

I recently attended a breakfast meeting that addressed how to maximize after tax proceeds from the sale of your business.  The discussion topics included capital gains taxes, estate taxes and various trust alternatives.  But, the first discussion was the importance of getting the company ready for sale so you started with the highest possible sale amount. 

While you may not be thinking about sale or exit strategy today, it is a good idea to be ready when a prospective buyer or investor shows up at your door. What I am describing should be standard operating procedure for any well run businesses. 

Clean up the books

This is all accounting and administrative stuff, but can take some time and effort. Normally your Controller or CFO will direct and supervise these efforts. 

  • Reconcile bank accounts and credit card accounts monthly.   Write off old checks and old outstanding items. 
  • Look at the accounts receivable aging and either collect or write off old amounts. 
  •  Count the inventory.  Does it have a lot of dust from sitting around? Clean up the warehouse or supply areas.  Throw out the old stuff and put a good number on the books. 
  • Update the fixed asset detail and write off all the old equipment. 
  • Clean up all the prepaid assets, accrued liabilities and other miscellaneous asset and liability accounts.
  • Officer loans, amounts from family members, other assets such as capitalized research and development costs. These are not assets that a buyer wants.  Have a plan to get them off the books. 

Get your Financial Statements reviewed by an outside CPA firm.

Have a CPA firm perform an annual financial statement review.  This is done after the year-end is closed and the books are cleaned up.  Typically a buyer will want three years of reviewed (or audited) financial statements and tax returns.  So get started now or you will be working to cover three years at one time.

Know your historic and projected cash flow. 

The ability of your business to generate consistent positive cash flow is a significant part of what the buyer is buying and what makes your business attractive to buyers and investors.  It is important for you to understand what the financial statements show and how a prospective buyer will analyze your company.

Looking at 3 years of history provides a perspective of what the company is capable of.  Prepare projections to show what you expect for the business for the next 3 years.  The projections should be consistent with the history or explained when there are substantial improvements or differences.  Buyers typically look at cash flow before owner’s salary and bonuses, financing costs and extraordinary gains or expenses.  Keep a rolling summary of 6 years (3 years history and 3 years projected). 

Prepare a summary sheet for initial discussions

As you begin the sales process, you may have prospective buyers, who are interested, but never get serious enough to provide a Letter of Intent.  How much information you disclose is the owner’s preference.  You may not initially want to provide complete financial statements.   Having a summary sheet that shows a historic and forecasted Balance Sheet, Income Statement and Statement of Cash Flow should provide sufficient information for preliminary discussions and allow all to determine their interest levels.

Update your accounting system

This is a longer-term suggestion.  But information is power and the more information you can pull out of your accounting system, the better off you will be.  Once you get a serious buyer, the information requests during the due diligence period will come quickly and may be unique in form and format.  It is always good to be able to show customer and project profitability, utilization of people and turnover of inventory. 

Other Information

This blog attempts to identify the very basic accounting and financial reporting information requirements.  There is much more to consider.  Are you selling to family or employees or an outside group?  For an outside buyer, when they begin due diligence they will ask lots of questions.  Here is a start:

  • Who are the employees that are key to the success of your business?  How are they compensated and incented to remain with the company.
  • How stable is the customer base (customer list) and will it easily transfer to a new owner. 
  • Do you have all your legal documents up to date and are they transferable?
  • What price range are you expecting and how do you feel about a mix of cash, note and earn out?
  • How much do you want to sell? All or only a portion?
  • Will you have an ongoing role in the company? For how long?


There is no shortage of business brokers, M&A experts, Investment Bankers and Corporate Advisors who can help you with the sale and all the issues.  Doing your part to have the basic information available about your business so the buyers can see the positive financial future your business offers will help with the price and the process.

Joseph Houk CPA (CFO Services, Inc.) is a Consulting CFO for businesses that require more than a bookkeeper but are not ready for a permanent CFO. He frequently assists clients with financing and planning issues.  Blog postings are available 0n