Our Client Wants to Sell His Business in Three Years. Here’s Why We’re Preparing the Financials Now.
By ProfitWise - a Visa Business Plans company
A business owner recently came to ProfitWise because he started thinking about selling his company within the next three years. The business was profitable, and his accounting and taxes were being handled, but preparing a company for a future sale requires a different level of financial clarity. He wanted to ensure that when potential buyers eventually reviewed several years of financial history, they would find clean, organized records that clearly supported the business's performance and value.
Three years may sound early to start preparing for a sale, but financially, it gives us something extremely valuable: time.
A Future Buyer Is Going to Look Back
When business owners think about selling, they understandably focus on what the company might be worth when they’re ready to put it on the market. A potential buyer, however, will want to understand how the business got there.
That can mean reviewing several years of financial statements and tax returns, comparing revenue and profitability year over year, looking at margins and cash flow, and asking questions about anything that seems unusual.
For our client, the financial history he creates over the next three years may eventually become an important part of what a buyer uses to decide not only whether to purchase the company, but how much they’re comfortable paying for it.
That’s one of the reasons we wanted to start now.
Clean Financials Can Affect More Than Due Diligence
There is another side to this that business owners sometimes overlook.
Imagine two companies with similar revenue, profitability, and growth. One can produce several years of clean, organized financial statements that clearly support the earnings the owner claims the business generates. The other reports similar earnings, but the buyer has to work through inconsistent bookkeeping, unexplained expenses, and numbers that require clarification before they can understand what the company is actually making.
Those businesses may look similar at first, but they don’t necessarily pose the same level of risk to a buyer.
When someone is preparing to invest a substantial amount of money, confidence in the financial information matters. If a buyer isn’t fully comfortable with the earnings presented, that uncertainty can creep into negotiations. The buyer may become more conservative about the price, request additional protections or question whether the business is worth the risk.
The opposite can also be true.
When a company has years of clear, consistent financials that substantiate its performance, the owner is in a much better position to defend the value of the business. Depending on the company's strength and its market, that financial transparency can also make a buyer willing to pay a premium.
Good bookkeeping doesn’t automatically make a company worth more, but poor financial records can certainly give a buyer reasons to discount it.
Good Bookkeeping Became Part of His Exit Strategy
Our client wasn’t looking for bookkeeping simply because he wanted someone else to reconcile his accounts. He was thinking about where he wanted the business to be several years from now.
By establishing specialized bookkeeping with ProfitWise now, we can build a consistent financial history while the business is operating instead of trying to reconstruct one when a buyer is already asking questions.
If something doesn’t make sense, we can address it while it’s happening. If an expense has been categorized incorrectly, we can correct it. If we notice a change in margins or cash flow, we can understand what is causing it.
Our monthly meetings also give the owner the opportunity to understand those numbers himself. By the time he eventually sits across from a buyer, he won’t be trying to explain several years of financial history that he hasn’t been closely following. He will have been reviewing it with us all along.
The Financials May Also Tell Us What Needs Work Before He Sells
Preparing for a sale isn’t just about having organized books. The numbers may reveal things about the business that could eventually affect its appeal to a buyer.
One customer may represent a large percentage of annual revenue. Sales may be increasing, but margins have been gradually declining. The owner may still be personally responsible for generating much of the company’s revenue, or the business may be profitable while producing inconsistent cash flow.
Those aren’t necessarily bookkeeping problems. They’re business issues, and finding them three years before a potential sale gives the owner time to act.
If customer concentration is a concern, there is time to diversify. If margins are deteriorating, we can investigate why. If the company depends too heavily on the owner, there is time to build a structure that doesn’t require his involvement in every important decision.
This is where our Fractional CFO work complements the bookkeeping. Once we have reliable historical information, we can use it to identify trends, model different scenarios and help the owner understand which changes could strengthen the business before he eventually takes it to market.
A Premium Has to Be Supported by Something
Every owner wants the highest possible price when selling a business, but a buyer won’t pay a premium just because the seller believes the company deserves one.
The financial performance has to support it.
If our client eventually says his business consistently generates a certain level of earnings, we want him to have the records to substantiate that claim. If profitability has improved over several years, we want a buyer to be able to see the trend. If the company has strong cash flow, healthy margins, or meaningful growth, the financials should make those strengths easy to understand.
The easier it is for a buyer and their advisors to verify what the business is actually producing, the stronger the owner’s position can be when negotiating its value.
That’s very different from trying to convince someone that a company deserves a premium while simultaneously explaining why the financial statements don’t quite match the story.
You Can’t Create Three Years of Financial History Three Months Before You Sell
You can certainly clean up books before a sale. You can correct errors, reconcile accounts, and sometimes reconstruct historical transactions.
What you can’t recreate at the last minute is several years of consistently maintained financials that the owner has reviewed and understood along the way.
That’s why our client is starting preparation now.
He may ultimately sell in three years. He may decide to wait longer, or not sell at all. Either way, he will spend those years with better financial information and a clearer understanding of the company he owns.
And if he does decide to sell, he won’t be scrambling to get the financial side of the business ready when a buyer starts asking questions.
He’ll have years of clean, organized financials supporting the business he built and, potentially, helping him command the premium he worked years to earn.
