Deals die in the data room. Not because buyers change their minds — though that happens — but because the finance function of the target company can't answer the questions that every serious buyer asks. Clean books, normalized EBITDA, and management presentations that hold up to scrutiny don't happen when the LOI arrives. They're built in the 18 months before the process starts.
Why 18 months, not 18 days before LOI
The intuition most owners have about selling: find a buyer, negotiate the price, sign the deal. The actual process: find a buyer, negotiate a price, sign an LOI, spend 60–90 days in diligence while the buyer's team tears your financials apart, discover problems neither party anticipated, renegotiate (or walk away), close (or fail to).
Diligence surfaces everything. Buyers and their advisors look at three years of financials, month by month. They trace revenue to contracts. They reconcile AR and test collectability. They look at payroll and benefits for undisclosed liabilities. They examine related-party transactions, owner perks, and non-recurring items with practiced skepticism. They hire Quality of Earnings firms to verify that the EBITDA you're claiming is the EBITDA that actually exists.
None of this is solvable in the weeks between LOI and closing. The finance function either holds up to scrutiny or it doesn't. Eighteen months gives you enough time to fix what won't.
What buyers are actually looking for
Three years of financials that close cleanly
Buyers want three fiscal years of financial statements. They want to see consistent methodology — the same accounting treatment applied the same way year over year. Anomalies, restatements, policy changes, and system migrations all create questions. Not insurmountable questions, but questions that consume time, create uncertainty, and get used to renegotiate price.
The standard is reviewed or audited financials for the trailing three years, with month-level detail available for analysis. Companies that have never been reviewed or audited often discover, during preparation, that their reported numbers don't fully survive scrutiny. Better to discover this 18 months out than 60 days into diligence.
EBITDA that can be explained and defended
Buyers pay multiples of EBITDA. The EBITDA they're willing to pay a multiple of is "adjusted EBITDA" — the earnings figure after removing items that won't recur under new ownership or that represent non-operational activity. Common adjustments include owner compensation above market rate, personal expenses run through the business, one-time costs, and unusual items.
Each adjustment is subject to negotiation and verification. Buyers will accept some and push back on others. The CFO's job is to document every adjustment with support — receipts, contracts, board minutes — and to have that documentation organized before the process starts. Adjustments that can't be supported don't survive diligence.
A clean entity structure and no surprises
Related-party transactions — loans between the business and the owner, leases to affiliated entities, consulting agreements with family members — all need to be disclosed and explained. Buyers don't necessarily object to these arrangements, but they need to understand them and quantify their impact on normalized EBITDA. Discovering a material related-party transaction mid-diligence that wasn't disclosed upfront is a trust problem, not just a financial one.
Quality of Earnings: what it is and why it matters
A Quality of Earnings (QoE) analysis is an independent assessment of whether the reported EBITDA is real — whether the revenue is sustainable, whether the costs are complete, and whether the accounting tells a reliable story of the business. Buyers commission QoE reports as part of their diligence. Sellers increasingly commission their own QoE (a "sell-side QoE") before the process starts, so they know what buyers will find before they find it.
The sell-side QoE is one of the highest-value investments an owner preparing for exit can make. It surfaces issues that need to be resolved, normalizations that need to be documented, and questions buyers will inevitably ask — giving you 18 months to address them instead of 60 days to explain them.
The management presentation
In any sale process, buyers expect a management presentation — typically a detailed document and a meeting where leadership walks through the business. The CFO owns the financial portions: historical performance, normalized EBITDA build, growth trajectory, working capital analysis, and capital expenditure history.
A well-prepared management presentation tells a coherent financial story. It doesn't hide problems — buyers find everything — but it frames the business's performance in the context of decisions that were made, markets that shifted, and steps already taken to address gaps. A CFO who has been in the business long enough to know that story can tell it credibly. An owner presenting without CFO support often can't.
Building exit-readiness in practice
The work of getting a finance function exit-ready typically involves: stabilizing the close process so monthly financials are reliable and timely; documenting the accounting policies that drive reported performance; normalizing EBITDA with support for each adjustment; resolving or clearly documenting related-party transactions; implementing a 13-week cash forecast to demonstrate liquidity management discipline; and commissioning a sell-side QoE to find the issues before buyers do.
Most of this takes 12 to 18 months to do well. It can be compressed under pressure, but compression costs — either in the quality of the work or in the diligence process itself.
We work with operating company owners at every stage of transaction readiness — from "thinking about it someday" to "we have an LOI and need to move fast." The earlier we get involved, the more leverage there is. More on how we approach transaction work is on our M&A readiness page. Most engagements start with a Financial Discovery Assessment that establishes the current state of the finance function and what needs to change before a process begins.