What it means to “clean up the financials”

Ready your firm to be sold We see a buyer in your future!


As we inch ever closer to a new and better year, the word “clean” gets flouted increasingly often – a cleaner diet, a clutter-free home, a spotless way to organize our array of the competing commitments that inundate our schedules. For business owners, the word “clean” takes on yet another meaning. It may be just what the trusted partners at OFWF recommend should you be eyeing the exit door. “Cleaning up the financials” is also the path to securing a buyer and sustaining the lifestyle you’ve come to expect, and the stability you desire well into your retirement or whatever life holds in store next.


A clean sweep


It’s always a good idea to revisit your “financial roadmap” (budget) on an ongoing basis, regardless of if the new year brings a potential transition or acquisition of your business or not. After all, how can you as a seller possibly know the areas that need to be “cleaned up” or improved upon to make your business as attractive as possible when you haven’t been tending well to the “map” that dictates your financial milestones and destinations?


Notably, cash flow remains king. Owners of small businesses can easily stray from giving this critical aspect of their operations the royal treatment that it deserves. A basic starting point to making your business a sparkling proposition for a would-be buyer involves visiting how invoices are managed. Set aside the time to assure that you are, indeed, being paid correctly and in a prompt fashion, each time. If there have been recent negotiations or changes to contracts that could add up to money-savings or that represent waste, that needs to be accounted for as well. And, again, who better to trust these all-important functions than accountants – like the team at OFWF?


We appreciate that, the closer one gets to the exit, the more obligations that are competing for precious time, including (no less) readying the next generation of leadership and transferring that “tribal knowledge” from one team to the next. Yet, that dream acquirer will not be on the horizon if you don’t prioritize the financials. By partnering with us, we can help to build more minutes in your day to do things like:

  • Go over statements, evaluate spending, receipts, and invoices each day, day in and day out. Just five to 10 minutes will do.

  • Organize documents in a way that also presents an improved system for your successors. The easier it is to access, retrieve, securely store and report these items as needed, the fewer the headaches and time this process will take the next go-around and over the longer term. Additionally, such organization supports complete and accurate documentation, too. Chaos does not promote accuracy; it merely fuels mistakes and many sleepless nights.

  • Consider the power of the data at your fingertips. The information that you regularly review and organize can provide helpful insights into your business, which can then be applied to the development and deployment of strategies that make what you have to offer all the more agreeable to an investor.

  • If there are any lingering overlaps between business and personal finances, nip that in the bud today! The co-mingling of finances in this regard paints a risky and unprofessional picture to parties that might otherwise have been keenly interested in your business.


Three of the seven steps to selling a business as outlined by the U.S. Small Business Administration’s mentorship program, SCORE, all fell under the “cleaning one’s financial house” category. This fact underscores the importance of getting one’s ducks in a row early into the process of establishing a timeline and strategy to sell.


Items noted by the mentor-network included having an excellent handle on any money that is owed to parties, ranging from suppliers to vendors to contractors and consultants. It’s vital to collect any monies outstanding from clients, too, which can help to pay down anything that you may owe to get your accounts “clean.” A strategy to consider is to sell accounts receivable to a “factor,” which compensates you for a portion of the monies owed. The factor then assumes ownership, and the burdens of collecting the debt, associated with the receivables. Also, assess those assets! Some assets and inventory can represent cash-generators. Again, consider these items objectively, based off of if these investments would be deemed a benefit or perk to those prospect buyers.


Likewise, if you’ve found yourself behind the eight ball when it comes to tax obligations, we have a robust team of tax professionals. They are happy to discuss strategies to minimize those liabilities and to help you avoid or minimize penalties. Installment plans or a reduction in amounts owed may be on the horizon, and are well worth discussing with us.


So, what exactly are buyers looking for?


In short, a business with “clean” financials is largely a “well-run operation.” The documentation that you provide should convey the following (generally non-negotiable) items:

  • A track record of financial performance and earnings (naturally!)

  • Future insights; for instance, clear plans that are accompanied by sound projections

  • A considerable understanding of the market

  • Clear communication of opportunities

  • Clear insights into how to secure opportunities

  • Well-defined and smart understanding of future threats

  • Articulated strategies to minimize those risks

  • Clarity regarding the ownership and management structure

  • Up-to-date management meeting minutes and like material

  • Properly-written contracts

  • Recently-reviewed and communicated policies and procedures


Notably, most buyers will want to evaluate a summary of financial statements that apply to the last three years of business. It is not sufficient to limit the summary to a year, or to cherry-pick the recent years’ financials, showcasing those numbers that put the venture in the best or most favorable “light.” In fact, your buyers likely want to see any substantive year-on-year changes with explanations for notable fluctuations. By enlisting the assistance of an independent, objective third-party, your buyer also has peace of mind that the information you are providing is true, reliable and complete, and that you pulling a fast one on them.


Likewise, if you don’t already have it, look three years into your crystal ball. Ask yourself: What do you foresee for the new buyers as it relates to your business? Industry? Documenting these forward-looking insights helps the buyer to better visualize future opportunities for success and continued growth. Throughout this process, it is important to put yourself into the shoes of the buyer. After all, you may have been there before. Remember what that process was like – what did you wish the then-owner had told you? What did the seller provide that was particularly useful? And how did they illustrate or communicate it to you?


Also, bear in mind that, as you go through this financial “housekeeping,” you may suddenly find yourself with more opportunities to elevate the value of your business. There may be things that you come across in the financials that could make your firm even more lucrative to a buyer. There may also be steps that you can take now to boost those profits. So, look for ways to cut expenses or to create efficiencies that ultimately bring your bottom line to new heights.


Financials (and facilities) that shine


Oh, and since we’ve been talking so much about clean up in the financial sense, it doesn’t hurt to clean up literally, too! The physical space still matters, even in this era of hybrid workforces. Make a lasting, great impression by putting your facility’s best foot forward. Even something as simple as a fresh coat of paint or on-trend furnishings can invigorate your team, and also convey enthusiasm and energy – that there is still plenty of growth to be had for the right future ownership team!

And, remember, our team is also staffed by professionals who have earned the Accredited in Business Valuation (ABV) designation. This is not just a nice title to tack on at the end of a signature; it means a real, firm understanding of the processes that go into objectively and fairly valuing a business. This process can really stump the owner or founder of a firm, as it’s true that our emotions can often “get in the way” of the analysis that is required to arrive at that number. We appreciate that, in so many ways, your business is “priceless” to you. We empathize with this, but also have the “just the facts” analytical expertise to get your labor of love sold, in a manner that both parties can more than live with. We welcome your questions – contact us today.


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