What quality of financial statements do buyers expect when you sell a business?

Three or more years of CPA-reviewed or audited statements prepared on a consistent basis let a buyer's advisors rely on the records without restatement. Internally prepared or inconsistent statements require independent verification, which extends diligence and increases deal risk.

Why does EBITDA normalization matter to a buyer?

A documented add-back schedule and normalized EBITDA bridge lets you defend owner compensation, personal expenses and one-time items in buyer conversations. Without it, buyers build their own, less favorable, view of normalized earnings.

How many years of financial history should be available for a sale?

Five years of complete P&L, balance sheet and cash flow with the trailing twelve months current within 60 days lets buyers establish a credible trend line. Fewer than three years of reliable history impairs their ability to underwrite a defensible valuation.

Why do buyers care about working capital documentation?

A documented working capital analysis, including seasonality, AR aging, AP terms and inventory, lets you define and defend a normal working capital peg. Without it, the peg is set on the buyer's terms at closing.

Do financial reporting systems affect the sale?

A recognized accounting system with a clean chart of accounts and consistent month-end close that does not depend on the owner can be maintained by any qualified accountant post-close. Informal, spreadsheet-based records create friction in institutional diligence.

Horizon M&A Advisors

Confidential

Prepared March 2026

Exit Readiness Assessment · Section 1 of 5

Financials & Recordkeeping Scorecard

An assessment of the five financial documentation factors that determine whether buyers can underwrite your business with confidence — and whether your records will support the valuation you expect.

Section 1 — Financials & Recordkeeping

Scoring Key

Green — Buyer-ready (2 pts)

Yellow — Needs attention (1 pt)

Red — Significant gap (0 pts)

Click a column to record your rating.

Financial Statement Quality

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
Three or more years of CPA-reviewed or audited financial statements are available, prepared on a consistent basis. Statements are free of material errors and will withstand review by a buyer's financial advisors without requiring restatement.	CPA-prepared statements exist but are compiled rather than reviewed or audited. Some inconsistencies in accounting treatment may be present and will require explanation during diligence. Buyers will proceed but with additional scrutiny.	Financial statements are internally prepared, incomplete, or inconsistently maintained. Buyers and their advisors will not be able to rely on these records without independent verification, materially extending the diligence timeline and increasing deal risk.

EBITDA Normalization

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
Owner compensation add-backs, personal expenses, and one-time items are fully documented with supporting schedules. A normalized EBITDA bridge is prepared and defensible in buyer conversations. Add-backs are conservative and substantiated.	Add-backs exist and are directionally accurate but are not formally documented with supporting schedules. Buyers will require additional detail during diligence, and some adjustments may be contested without clear substantiation.	No formal normalization has been performed. Owner add-backs are embedded in the financials without documentation. Buyers will construct their own view of normalized EBITDA, which will typically be less favorable than the owner's own assessment.

Historical Financial Availability

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
Five years of complete financial history is available — P&L, balance sheet, and cash flow statement — prepared on a consistent basis. The trailing twelve months are current within 60 days. Historical trends are explainable and consistent.	Three years of financial history are available, but records prior to that are incomplete or unavailable. The TTM may lag by more than 60 days. Some year-over-year variances require explanation that is not yet documented.	Fewer than three years of reliable financial history exist, or records are in disarray. Buyers will be unable to establish a credible trend line, which directly impairs their ability to underwrite the business and support a defensible valuation.

Working Capital Documentation

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
Working capital requirements are understood and documented. Seasonal patterns are identified and explained. AR aging, AP terms, and inventory levels are tracked and current. A normal working capital peg can be defined and supported for negotiation purposes.	Working capital is managed operationally but is not formally documented for transaction purposes. The owner understands the cash cycle but has not prepared a working capital analysis that could withstand buyer scrutiny or support a negotiated peg.	Working capital requirements have not been analyzed in the context of a transaction. AR aging may be stale, inventory may be unvalued, or cash conversion cycles are not understood in sufficient detail to negotiate working capital adjustments at closing.

Financial Reporting Systems

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
The business uses a recognized accounting system with a clean chart of accounts and consistent month-end close procedures. Financial reporting does not depend on the owner and can be maintained by any qualified accounting professional post-close.	Accounting software is in use but the chart of accounts is disorganized, the close process is inconsistent, or the bookkeeper relies on owner judgment to classify certain items. The system works but would require remediation before a buyer would rely on it.	Financial reporting is informal — spreadsheets, cash-basis records, or owner-managed accounts. The system is not scalable, not transferable, and will create material friction in any institutional diligence process.

Financials & Recordkeeping Assessment Score

— / 10

8 – 10

Financial records are buyer-ready. Will support a clean diligence process and substantiate the valuation presented in the CIM.

5 – 7

Material gaps identified. A 6–18 month preparation effort — including CPA review, normalization schedules, and system cleanup — will significantly improve diligence readiness.

0 – 4

Significant deficiencies present. Financial records in their current state will impair buyer confidence and undermine valuation. Begin remediation immediately.

Discuss your results with an advisor. A complimentary 30-minute strategy call with Dave Halvorson will provide a professional assessment of your financial readiness, identify the highest-priority remediation steps, and outline a preparation timeline before you engage any buyer.

Schedule a Call

This document is provided for informational purposes only and does not constitute a formal valuation, opinion of value, or engagement to provide advisory services. All assessments are self-reported by the business owner and are not verified by Horizon M&A Advisors. Results are intended to support internal exit planning and should not be shared with prospective buyers or used in connection with any transaction without the written consent of Horizon M&A Advisors.