Key takeaways
- Buyers price what they can verify, so every dollar of profit you cannot prove is a dollar you will not be paid for.
- Normalised EBITDA adjusts reported earnings for owner-related and one-time items, and every adjustment needs a document behind it.
- Start two to three years before a sale, because buyers look back that far and clean history cannot be created in a quarter.
- Work with your CPA on the statements and tax, a lawyer on the deal and a broker or M&A adviser on the market.
When a buyer looks at a company, they look at the numbers first and the business second. Statements that are late, inconsistent or full of personal expenses lower the price, lengthen due diligence and sometimes end the deal. Statements that are clean, consistent and well explained do the opposite. The preparation takes time, which is why we tell BC owners to start years before they plan to sell.
This guide covers the finance side of exit readiness. Tax planning around a sale is your CPA's territory, the agreement is your lawyer's, and the market process is a broker's or M&A adviser's. Ali's firm BizSell.ca handles valuation and sell-side work for owners who want that end of the process too.
Get the history consistent
Buyers typically ask for three years of year end statements and the current year to date. The first test is consistency: the same accounting policies, the same chart of accounts, the same revenue recognition and the same cost of sales definition across all of them. If the chart changed, provide the mapping. If a policy changed, explain it. Work with your CPA to decide whether the level of assurance on the statements should be raised before going to market, because buyers and their lenders often ask.
Build the normalised EBITDA schedule
EBITDA is earnings before interest, taxes, depreciation and amortisation, and buyers use a normalised version of it as the base for valuation. Normalising means adjusting reported earnings for items that will not continue under a new owner. The common adjustments, often called add-backs, are owner compensation above or below a market salary for the role, personal expenses run through the company, family members on payroll who do not work in the business, one-time legal or restructuring costs, and non-recurring revenue or costs.
Every add-back needs evidence: the invoice, the payroll record, the explanation. Buyers test each one, and an add-back that fails costs more than its own value in credibility. Prepare the schedule with your CPA and keep it conservative.
Separate the owner from the business
Buyers want a company that runs without you. Financially that means a market salary for the owner's role on the books, personal costs paid personally, shareholder loans reconciled and explained, and related-party transactions, such as rent paid to a company you own, documented at market terms. Start making these changes early so the last two years of statements show the business as a buyer will run it, rather than relying entirely on add-backs.
Think also about what the buyer will need from you after the sale. If the company's customer relationships, supplier terms and pricing decisions all run through the owner, the buyer will discount the price or ask for a long transition. Documenting those relationships, moving them to a manager where possible and showing in the numbers that the business performed while you were less involved all support the valuation.
Prepare the schedules buyers test
- Revenue by customer and by product or service line for three years, showing concentration
- Gross margin by the same dimensions, reconciled to the statements
- Receivable and payable aging, inventory listing and any slow-moving or obsolete stock
- Fixed asset register with condition and replacement needs
- Debt, lease and commitment schedule
- Payroll by role, contracts and compensation plans, with personal information handled under your lawyer's guidance
- Working capital by month, because buyers set a target level in the agreement
Fix the balance sheet
Write off receivables that will never be collected. Count and value inventory and write down what is obsolete. Clear suspense and uncategorised accounts. Bring remittances fully current and keep them there. Reconcile shareholder loans. Record customer deposits and accrued liabilities properly. A buyer's due diligence team will find every one of these, and it is far better that they find them already fixed.
Ask your CPA to review the fixed asset register and the depreciation policy at the same time, so the statements and the register agree.
Run the business on reports a buyer would recognise
The last stage is to run the company for a year or two on the reporting a buyer would expect: monthly statements closed on a deadline, a weekly pack, margin by service line, a rolling forecast and a cash forecast. It raises the price, because a buyer pays more for a company that knows itself. It also shortens due diligence, because the questions have already been answered. And if the sale does not happen, you own a better company.