Prepare for Due Diligence – Selling Business
Most owners find out how ready they are for a sale about two weeks after they sign with an investment banker, when the first document request list arrives and someone has to go find seven years of legal invoices.
Geneva Fischer, Senior Controller at Sayva Solutions, has sat on the accounting side of that process for multiple companies across different verticals. Her view is that the work that decides how diligence goes happens well before a buyer is in the room, and almost none of it is complicated. It’s just tedious, and it doesn’t get done because nobody is being paid to do it yet.
1. Build the data room before you go to market
Buyers ask for the same things every time. Invoices. Legal and litigation records. IP documentation and what the IP cost to develop. Payroll reports. Supporting schedules. Proof that taxes were actually paid, that registrations are current, and copies of the returns.
None of that is unusual. What varies is whether an owner can hand it over in an afternoon or spends three weeks digging through filing cabinets and old email. Geneva’s advice is to centralize and digitize all of it in advance, so every request gets answered the same day.
How fast those answers come back is the first read a buyer gets on how the business is run.
She’s firm on one point. Compile documents into the data room rather than giving a buyer direct access to your accounting system.
Doing this early has a cash benefit too. From initial valuation to going to market usually runs two to three months, and investment bankers typically charge monthly through it. Shortening that stretch takes weeks off the bill.
2. Fix sales tax before a buyer finds it
When diligence goes badly, sales tax is very often the reason. It is the compliance issue Geneva sees surface most often in companies that did not prepare, and it is worth reviewing early for the simple reason that it is correctable when you find it yourself and expensive when a buyer does.
3. Get the close down to ten business days
Ten business days is a reasonable target for most companies, though the right number depends on the business model and how complex the operation is.
That target earns its keep during a live deal. Once an LOI is in play, negotiations run against whatever the most recent numbers say, and a good month that closes quickly can move the multiple.
Adjustments belonging to a prior period are a related piece of this. You don’t reopen the prior period. You book the adjustment in the current period with a footnote explaining it, then produce a pro forma restatement showing what the financials would have looked like had it been recorded correctly the first time.
4. Know your add-backs, and stop running personal expenses through the business
Add-backs get discussed as though they only ever help the seller. They go both directions.
If an owner has been paying themselves well above market, adding back the excess raises EBITDA. If an owner has been underpaying themselves, which is common in businesses that have been reinvesting for years, normalizing owner compensation to market rate lowers it. Either way, you want to know which one you are before a buyer tells you.
The harder problem is documentation. Personal expenses that ran through business accounts have to be identified and supported. Geneva is blunt about this. Stop sharing credit cards between personal and business use. It creates a trust problem that goes well beyond the dollars involved.
5. Working capital is negotiable
The buyer wants the business delivered with enough working capital to keep running, which is reasonable. How much that is gets set by a target, and the target is usually the average of net working capital over a trailing period. Most buyers ask for twelve months. Some will settle for less.
The length of that window is the part worth fighting over, and it cuts both ways. A shorter window lets a seller anchor on a stretch when working capital happened to be low, which sets a lower target and leaves more cash in the seller’s pocket at close. It also means the business changes hands with less to run on.
Geneva has watched a seller negotiate the window down to three months and count it as a win. After close, the vendor bills that had been sitting there came due, several suppliers moved the company to prepayment, and the business spent its first months under new ownership short of cash.
That outcome is worth thinking about before you push for the shorter window, particularly if you are rolling equity, have an earnout riding on post-close performance, or simply care what happens to the place. Have someone at the table who has negotiated this before.
Get the lawyer before the banker
Retain the M&A attorney before you engage the investment banker.
The banker’s engagement letter is itself a negotiation, and the NDAs that go out to prospective buyers need to be drafted before anything goes to market. Owners routinely do this in the other order, sign the banker’s standard agreement, and then hire a lawyer who tells them what they just agreed to.
The same logic applies on the accounting side. Producing the numbers isn’t enough once a deal is live. Someone embedded enough to explain why a line moved in a given month can answer a buyer’s question directly and defend the financials in real time. In some cases that depth of knowledge reduces what a quality of earnings review costs, because there’s far less for the outside firm to reconstruct.
Where to start
Start with the dull work. Get the documents digitized, get sales tax reviewed, and get the close down to ten business days. None of it requires a banker or a decision about selling.
Sayva works with owner-operated companies on exactly this, either as ongoing fractional accounting and CFO support or as a focused readiness project ahead of a transaction. If you’re weighing whether that support should be internal or outside, we’ve written on the pros and cons of outsourced finance and accounting and on when it’s time to add CFO capability. For how this plays out at enterprise scale, see our work on M&A optimization and ERP integration.
If a sale is coming, book a call and walk us through your last close. We’ll tell you what a buyer is going to find.
