Preparing your financials before a sale

Buyers form a view of your business long before lawyers open a data room. The numbers you share early — and how cleanly they hang together — shape price, structure, and whether serious diligence ever starts. For UK and US owners, a few months of quiet preparation usually matter more than a glossy information memorandum. Order beats polish: accounts that reconcile, adjustments you can explain, and working capital you understand.

Start with clean, consistent accounts

Management accounts should match statutory filings closely enough that a careful reader does not trip over unexplained gaps. Align revenue recognition, period cut-offs, and how you treat one-offs. If personal expenses, related-party rents, or owner compensation sit inside the P&L, document them clearly rather than hoping they go unnoticed. Serious buyers assume some normalisation; they lose confidence when the story changes every time a question is asked.

Aim for at least three years of history plus year-to-date figures, with monthly detail for recent periods. Keep a simple bridge from reported profit to the “adjusted” earnings you would use in a conversation about value. That bridge is not spin — it is a map of what is recurring and what is not.

Quality of earnings readiness

Quality of earnings work asks whether the profit you present will still be there under new ownership. Customer concentration, contract renewals, pricing power, and cost inflation all sit in that frame. So do accounting choices: capitalisation policies, deferred revenue, inventory provisions, and how warranty or claim reserves are set. You do not need a formal QoE report before the first confidential conversation, but you should know where a report would land.

• List major customers and revenue share; note renewals and any known attrition risk.
• Separate one-time gains and costs from the run-rate of the business.
• Flag accounting policies that differ from peers or that recently changed.
• Be ready to explain seasonality, backlog, and how cash converts from profit.

Working capital and the balance sheet

Deals often hinge on a working-capital target as much as on headline earnings. Debtors, creditors, inventory, and deferred income need to look normal for your sector — not artificially low just before a sale. Buyers will ask what a typical month requires to fund operations. If the business has run lean by stretching payables or delaying stock, expect that to show up in negotiations.

Clean up aged receivables, write off what is truly uncollectable, and make sure intercompany or owner balances are resolved or clearly disclosed. Cash that sits outside the company — or debt that appears only when diligence deepens — creates distrust faster than almost any other surprise. A quiet balance-sheet review with your accountant is usually enough to surface the awkward items early.

What buyers expect before diligence gets serious

Early materials can stay high-level: summary P&Ls, a short note on adjustments, and an honest picture of concentration and key people. Depth increases once an NDA is in place and exclusivity or a letter of intent narrows the field. At that stage, expect requests for trial balances, bank reconciliations, tax filings, customer lists under controlled access, and schedules of contracts and leases. Long-term buyers schedule that work around your operating reality; they do not need the shop floor to become a rumour mill.

Owners sometimes over-invest in narrative and under-invest in schedules. Prefer a tidy pack you can defend over a brochure you cannot. Clarity shortens diligence, reduces renegotiation risk, and signals that the business is already run with the discipline a long-term owner expects.

If you are considering a confidential exit and want a calm read on how ready your financials are — or what still needs organising — a short private call is enough. We will not contact your staff, customers, or competitors.