Cleaning up your balance sheet before a sale is important for several reasons:

Attracting prospective buyers: A clean balance sheet indicates that a company is in good financial health and has accurate and verifiable figures. Prospective buyers find companies with clean balance sheets attractive because they have minimal leverage, which reduces downside risks. A sudden tidy-up of the balance sheet can sometimes be a signal that a company is readying itself for a potential sale.

Facilitating the due diligence process: Buyers will typically request 3 to 5 years of financials’ when evaluating a potential acquisition. Having a clean balance sheet and well-organized financials can make the due diligence process smoother and faster, increasing the chances of a successful sale.

Providing a clear picture of the company's assets and liabilities: Removing non-operating assets and reducing discretionary expenses from the balance sheet can help buyers understand what assets are needed to run the business and evaluate its financial position more accurately.

Improving the chances of getting the best price and terms for the company: By starting to make positive changes to the financials 1-3 years before the sale, you can improve your chances of getting the best price and terms for your company. Buyers are more likely to offer favorable terms to companies with clean and well-maintained balance sheets.

Helping the CEO and executive team make informed, strategic decisions: clean financials, including accurate and up-to-date balance sheets, provide the necessary data for the executive team to make informed decisions on behalf of the business. If the financials are a mess, it can be infinitely harder for the executive team to make good decisions, potentially impacting the company's performance and value.

Release date: 11/1/2023