Clean Books, Higher Offers: How to Prepare Your Business for Sale 2–3 Years in Advance

Selling your business is one of the biggest financial events of your life. But the difference between a smooth, top-dollar sale and a frustrating one often comes down to how clean and organized your financials are.

The earlier you start preparing, ideally 2–3 years before you plan to sell, the more flexibility you’ll have to improve value, minimize taxes, and make your business easier for a buyer and bank to understand.

Why “Clean Books” Matter

When buyers (and their banks) evaluate your business, their first question is simple: “How much cash flow does this business generate?”

That cash flow is often measured as Seller’s Discretionary Earnings (SDE)—the owner’s total financial benefit from the business. SDE includes:

• The business’s net profit
• The owner’s salary
• Addbacks such as verified personal expenses (insurance, vehicle use, etc.)
• Non-cash items like depreciation, amortization, and interest

A buyer uses SDE to estimate both value and affordability. For example, if your SDE is $200,000 and the industry multiple is roughly 2.5×, your estimated business value might be around $500,000.

Clean, consistent books are how you prove that cash flow to outsiders. They tell the financial story of your business—one that buyers, lenders, and valuation professionals can trust.

3 Years Out: Establish Financial Discipline

Start by building reliable, transparent systems. These early steps form the foundation for your eventual valuation.

1. Standardize Your Bookkeeping

• Use a consistent chart of accounts that matches your tax returns
• Close and reconcile your books monthly
• File taxes on time, buyers and banks look for patterns, not excuses
• Make sure your owner’s salary, rent, and key expenses appear clearly on the first page of your tax return

2. Review Margins and Cut Waste

• Review your margins regularly—do they align with your industry?
• Confirm that items in “Cost of Goods Sold” actually belong there
• Shop around for insurance, supplies, or service providers
• Every extra dollar of profit can increase your business value by $2–$3 or more

3. Clean Up Personal Expenses

Many owners run personal items through the business for the “write-off.” But here’s the math:

• Assume a 30% tax rate
• Each $1 in personal expenses saves you $0.30 in taxes
• But that same $1 can reduce your valuation by $2.85 (if the multiple is 2.85×)

In other words, you’re giving up $2 to save 30 cents.

If you have legitimate, easily verified addbacks (health insurance, retirement contributions, etc.), document them clearly. If they aren’t visible on your chart of accounts or tax return, they’re unlikely to be accepted by a buyer or a bank.

💡 Pro Tip: The SBA often doesn’t add back small items like personal auto or phone expenses. Cleaning these up early helps your buyer get financed, and helps you get paid.

4. Talk with Your CPA and Financial Advisor

Work with your advisors several years before selling to develop a tax-efficient exit strategy. Setting up a retirement plan, for example, is a great way to reduce taxable income while keeping more of the benefits for yourself.

2 Years Out: Optimize Assets and Balance Sheet

Once your books are consistent, it’s time to clean up your balance sheet and supporting records.

1. Assets and Depreciation

• Create an organized equipment list with model numbers and photos
• Review and adjust depreciation schedules
• Sell or dispose of obsolete equipment

Remember: all debts and loans must be paid off at closing.

2. Inventory, Accounts Receivable, and Payables

• Keep inventory accurate and current
• Write down old or obsolete stock
• Collect overdue receivables (“that’s your money”)
• Pay down or reconcile outdated payables
• Have your accountant “clean up” the balance sheet for clarity

3. Document and Organize

Buyers want to see a professional operation—not chaos.

• Update your CRM and customer records
• Ensure employee files, handbooks, and HR documents are current
• Review contracts, leases, and vendor agreements
• Verify that all licenses, permits, and certifications are valid and transferable
• Protect intellectual property—trademarks, domain names, and proprietary materials should be in the company’s name, not your personal one

💡 Pro Tip: When you can hand a buyer a clean digital folder labeled “Contracts, Licenses, and Key Assets,” it signals that your business is well-managed and ready to transition.

1 Year Out: Prepare for Presentation and Due Diligence

Now it’s about presentation and consistency.

1. Make Financials Presentation-Ready

• Ensure your financials match your tax returns
• Eliminate “miscellaneous” or “ask accountant” categories
• Save clean, professional PDFs or Excel files, no handwritten edits
• Create a short written summary that explains any anomalies or one-time events (e.g., legal fees, renovations, or equipment purchases)

2. Normalize for Valuation

Identify and document any non-recurring or owner-specific expenses. These can often be added back when calculating SDE, but only if properly documented.

3. Plan for the Buyer’s Questions

Think like a buyer:

• Can they clearly see what they’re buying?
• Can they verify cash flow through tax returns and bank statements?
• Can they get SBA financing based on your books alone?

If you can answer “yes” to those questions, you’re ready for the market.

✅ 3-Year Prep Checklist

• Reconcile books monthly and file taxes on time
• Eliminate or document all personal expenses
• Review margins, pricing, and cost structure
• Build a detailed, organized asset list
• Clean up A/R, A/P, and inventory
• Update CRM, contracts, and employee files
• Set up or review your retirement plan
• Talk with your CPA and financial advisor about tax planning

Final Thought

The best time to start preparing your books for sale was yesterday. The second-best time is today.

Clean, consistent financials make your business easier to understand, easier to finance, and easier to sell, for more money.

Learn More with a Free Consultation

To help you learn more. You can schedule a discovery call with me. There is no obligation, and it is confidential. Your call is an opportunity for a quick meet and greet. I would love to hear about your business journey, and we can go over any questions about exit planning, business valuations, and buying/selling a business.

Also, I can lay out what the path of selling your business looks like for you. Information that you can use to make when you decide to sell much easier and more profitable.

Ben Shaw – Murphy Business Sales of Wilmington

b.****@************ss.com Call/Text 937-623-8571