How to Prepare Your Business for Sale
Written by Ryan McCaslin, CPA, CIA, CEPA | Transaction Advisory Services Partner, EHTC
For most closely held business owners, the sale of their company will be the most significant financial event of their lifetime. However, the majority begin thinking about it too late. Throughout my 20-year career in transaction advisory, I have seen firsthand how preparation, or the lack of it, can make or break the outcome of a sale.
My advice to any business owner is to start thinking about your exit on day one. Call it what you want: operational improvement, value creation, or business consulting. Exit planning is simply the discipline of building a business that is well-operated, well-documented, and ready for transition when the time comes.
This article focuses on the financial side of that preparation, and specifically on how EHTC’s Transaction Advisory Services team can serve as a proactive partner throughout the process.
Conduct an Accounting Assessment
The foundation of sale readiness is financial clarity. EHTC begins by conducting a detailed analysis of your current accounting and reporting policies and procedures to identify areas for improvement. Common findings include:
Segregation of duties issues that could raise red flags during due diligence
Opportunities to upgrade reporting accuracy (e.g., transitioning from cash basis to accrual accounting)
Gaps in reconciliation practices or customer & product profitability reporting
Clean books tell a better story. The goal is to ensure that the financial picture a buyer encounters reflects the true strength of your business.
Build Value Through Financial and Operational Improvements
Prior to a potential sale, EHTC works alongside your team to identify and implement financial and operational initiatives that build both tangible and intangible business value. This phase is proactive and ongoing, not a last-minute exercise. Key areas of focus include:
Customer pricing strategy: We analyze historical pricing, assess the ability to raise prices, and identify price pass-through strategies.
Quality of Earnings analysis: A full Quality of Earnings (QofE) report identifies non-recurring items and other adjustments to EBITDA, producing a model that can be updated monthly to maintain transaction preparedness. This is a valuable management tool and a critical component of any sale process.
Forecasting and projections: Documented projections demonstrate that your business has a clear growth plan and that management is actively executing on goals developed during the value creation process.
Tax structure review: We evaluate whether your current tax structure is compatible with your growth and EBITDA improvement targets, recommending adjustments where appropriate.
Engage With an Investment Bank Early
At EHTC, we work with multiple local and national investment banks to support the sell-side process, including preparing Quality of Earnings reports prior to a company going to market. This allows an investment banker to present adjusted EBITDA figures that have been vetted by an experienced, independent CPA, providing a significant advantage during buyer negotiations.
My advice: Do not wait until you are ready to sell to have a conversation with an investment bank. A good banker brings comprehensive market knowledge, an understanding of current and expected valuation multiples, and insight on whether market timing is in your favor. Even if a sale is five or more years away, that conversation can meaningfully shape your preparation strategy.
Understand the Real Value of Pro Forma Adjustments
Pro forma adjustments present what a company’s financial performance would look like under certain situations, had they occurred in the past. For example, the cost realized from renegotiating a contract with a key vendor can be applied historically to present the margins a buyer could expect to see after purchase.
A company may integrate pro forma adjustments in an effort to present to potential buyers in the best light possible. These can be legitimate and meaningful depending on the situation, but in my perspective, buyers do not assign full value to pro forma adjustments.
Think of it this way: Why should a buyer pay a seller for changes the seller could have made years ago but did not? Whether it’s letting customer relationships erode, failing to manage supplier costs, or overpaying for business insurance, a buyer will discount value for any improvement that was not actually realized in the reported results.
This is the core message: If there are pricing increases you can make, make them. If there are costs you can reduce, reduce them. Consistently review and implement value-adding initiatives now to receive maximum value during the sale process.
The Bottom Line
Exit planning is not a single event. It is an ongoing process that, when started early, gives business owners the best possible chance of maximizing value, minimizing surprises during due diligence, and closing on their terms.
EHTC’s Transaction Advisory Services team is here to support that process at every stage, even when a sale could be years away. If you have questions about where your business stands or how to start an exit plan, reach out. The earlier the conversation, the more value we can help you build.
About the Author
Ryan McCaslin, CPA, CIA, CEPA, Transaction Advisory Services Partner, specializes in financial due diligence, Quality of Earnings reporting, and exit planning for the middle market.
Over the past 20 years, Ryan has focused on providing buy-side consulting to private equity groups and strategic acquirers, as well as sell-side consulting services to companies working with an investment banker as a guide through the sale process. He has led buy-side and sell-side engagements across transactions ranging from $5 million to $1 billion in enterprise value, spanning industries including manufacturing, distribution, construction, business services, and technology.
Ryan earned his Certified Exit Planning Advisor (CEPA) credential through the Exit Planning Institute and serves on the leadership team of the West Michigan Exit Planning Association. He is also a member of the Association for Corporate Growth (ACG).
To connect with Ryan, reach out at ryan.mccaslin@ehtc.com.
