When Considering a Sale, How ‘Clean’ Do My Numbers Have to Be?


Q: When considering a sale, how ‘clean’ do my numbers have to be?  

JT says: The definition of ‘clean’ takes many forms, allow me to substitute ‘defensible’.  Defensible means, ‘can we prove the numbers are what they appear to be’?  Initial responses are ‘of course’.  However, our industry has unique challenges surrounding consistent accounting methods, revenue recognition (correct time periods), WIP adjustments, collections, overhead allocations, etc.  Add-in large loss / CAT work, accounting gets tricky.  

After an accepted offer and in due diligence, buyers will conduct a Quality of Earnings (QE).  This forensic accounting process answers the ‘prove the numbers’ question above.  The result?  In most instances there are adjustments.  (i.e.- Your definition of ‘clean’ differs from buyers / lenders.) 

The best ‘defense’ is when sellers conduct their own ‘sell-side QE’.  Buyers are then approached with vetted and proven numbers, removing the likelihood of downward adjustments in Adj. EBITDA and business value.  When applicable, a QE helps ensure success with both your sale and retirement.  

Get Answers + Get Prepared = Get Retired

Have a question for JT? Don’t worry, all questions will remain anonymous! You can email JT at jt@exitstrategies360.com.

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JT Kraai

As CEO and Founder of Exit Strategies 360, JT takes extreme pride in helping business owners prepare and navigate the business sales process.  As an M&A Advisor, Broker and Consultant for 20+ years, he has structured hundreds of transactions for virtually any scenario, keenly understanding the needs of both buyers and sellers. 

JT indicates, “Most business owners are unaware of their options when it comes to preparing and selling their business.  These options can increase cash and decrease taxes by hundreds of thousands of dollars.  An educated decision is always the best.”

He then adds, “An owner’s weakest link is fear… without knowing how to proceed, they don’t.  We offer the tools, process and roadmap to proceed with confidence.”  

With over 25+ years of entrepreneurial ventures including five start-ups/sales, he has a solid understanding of what it takes to successfully create, expand and maximize business values. JT instinctively has the expertise and capacity to think about critical factors affecting the success of a transaction, providing an extremely valuable perspective and advantage for his clients.  

According to JT, “You’ll probably do this only once in your life… let’s do it right.”

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