By: Natalie Johnson
Most owners think of selling their business as a transaction. But a buyer’s evaluation reaches back years before anyone signs a letter of intent. By the time a buyer appears, much of the record is already written, including the consistency of monthly closes, how management addressed budget variances, and whether customer relationships extend beyond the owner. Douglas Prohaski, Chief Executive Officer of Fractional Finance Works, encourages owners planning an exit in the next two years to begin preparing now. Cleaning up the books before a sale can correct the balances, but it cannot replace a track record of disciplined financial management. That history gives buyers confidence in the earnings they are evaluating and the business they will inherit.
Every Month You Wait Is Evidence You Lose
One of the costliest decisions an owner can make is to delay preparation. “The biggest mistake is waiting one more day to prepare your financial statements for scrutiny,” Prohaski says. “Every month of accurate, consistent, and transparent reporting builds confidence in your numbers, and in your ability to manage the business.”
That preparation goes beyond presenting clean financial statements. It means reconciling balance sheet accounts and supporting the balances, understanding where revenue and margin are earned, and comparing actual cash flow with the forecast. A consistent history of these practices demonstrates how management runs the business, something a last-minute cleanup cannot recreate.
Comparing expectations with results makes that history more persuasive. Prohaski encourages owners to maintain budget-to-actual reporting that shows management set expectations, investigated differences, and acted on what it found. “If you want to sell within the next 12 to 24 months, every month you wait is a month of evidence you lose,” he says. “Cleaning up the books before a sale may correct the balances, but it cannot replace a track record of disciplined financial management. Give a buyer that history.”
Owners who begin preparing now build a stronger reporting history with each passing month. Those who wait until a sale process begins have less time to demonstrate disciplined management and address questions before buyers raise them.
Credibility Requires More Than Accurate Financial Statements
Accurate financials are essential. They become more persuasive when buyers can connect the reported results to the underlying operations. Prohaski wants buyers to see how the pieces fit together: income statement results compared with budget, with explanations for differences in revenue, margin, and expenses; actual cash flow compared with the forecast; and balance sheet movements explained by capital spending, working capital needs, and borrowing or debt repayment. “The goal is not to hit every forecast perfectly,” he says. “It is to demonstrate that management understands the differences and responds to them.”
Operational data helps support those explanations. If revenue grew, a buyer wants to know whether pricing, volume, or new customers drove it. If margins improved, they want to understand whether productivity increased, purchasing costs fell, or the sales mix changed. The metrics an owner uses to run the business should explain the financial results. When those connections are missing, buyers have to spend more time validating the numbers, which can weaken confidence and create additional negotiating pressure.
Before going to market, Prohaski advises addressing inconsistent accounting, unsupported balances, and gaps between financial reporting and operating data. Unusual expenses and proposed earnings adjustments should also be documented and explained. “A buyer should be able to follow the connection between what happened, why it happened, and what you expect next. That is what makes the numbers credible.”
Understand What Supports the Value
Valuation preparation should begin before an owner settles on an asking price. “Owners often know what they want for their business before they understand how it will be evaluated and valued,” Prohaski says. “They would never take a product or service to market without understanding their customers and competition. Selling the entire business deserves that same preparation.”
That means understanding what supports the value. The operating business and any real estate should be evaluated separately, with clear support for the value assigned to each. Combining them into one asking price does not eliminate the need to support both values.
It also means modeling the buyer’s side: the investment required, the cash flow available, the risks, the cost of replacing the owner’s responsibilities, and the capital expenditures and working capital the business will require. If the likely buyer will use a loan backed by the U.S. Small Business Administration, the purchase price must also be supportable through the lender’s underwriting process.
Know What You Will Keep, and What Comes After Closing
Understanding the purchase price is only part of the equation. Owners also need to understand how much they will actually receive, when they will receive it, and what obligations or risks remain after closing. Debt repayment, working capital adjustments, taxes, transaction costs, and the timing and conditions of payments all affect the seller’s net proceeds.
Prohaski encourages owners to distinguish between two separate decisions: helping with a transition and accepting proceeds tied to future performance. If part of the payment depends on results after closing, the owner should weigh how much control they will retain over those results against how much uncertainty they can accept. Before negotiations begin, owners should establish their preferences for any post-sale role, including its responsibilities, duration, and compensation.
Buyers will also want to understand how well the business can operate without the owner. Customer and product reporting helps them evaluate revenue concentration, margins, and purchasing trends. Documented processes, customer relationships shared across the team, and clear management responsibilities help demonstrate that performance can continue without the owner’s daily involvement.
Where to Start in the Next 90 Days
Start by assessing the gaps a buyer would question: inconsistent monthly reporting, unsupported balance sheet accounts, undocumented earnings adjustments, and dependence on the owner. Set priorities, assign responsibility, and begin building a consistent record of financial and operating performance. Bring in the financial, tax, and legal professionals needed to address those gaps and understand the implications of a sale.
“Marketing creates interest,” Prohaski says. “Preparation gives buyers a reason to move forward.”
Prohaski shares more insights on transaction readiness, financial reporting discipline, and preparing a business for sale on LinkedIn.
