The financial and tax work that most affects a sale outcome happens well before a letter of intent is signed. Once diligence begins, the ability to change entity structure, clean up records, or restructure compensation narrows quickly.
This article outlines the items owners commonly wish they had addressed earlier. It is meant as a planning starting point, not as a substitute for engaging a transaction attorney, CPA, and financial adviser experienced with sales.
Get clean financial statements in place
Buyers evaluate the business from the financials before they look at anything else. Statements that mix personal and business expenses, use inconsistent accounting methods, or lack support for major line items generally reduce buyer confidence and can lower valuation.
- Three years of clean, consistently prepared financial statements.
- A defensible list of add-backs and owner-specific expenses.
- Support for major revenue concentrations and customer relationships.
- Clear separation between operating results and one-time items.
Understand how the deal will be taxed
The tax outcome of a sale depends on entity type, whether the transaction is structured as a stock or asset sale, how the purchase price is allocated, and where the seller is a tax resident. These variables often produce meaningfully different after-tax proceeds for the same headline price.
Address personal financial planning before signing
After a sale, the owner’s income, tax situation, and portfolio typically change all at once. Modeling personal cash flow at various net proceeds levels helps set an informed reserve price and reduces the risk of a lifestyle mismatch after closing.
Coordinate the professional team early
A transaction attorney, tax adviser, financial adviser, and investment banker each address different parts of the deal. Coordinating them before the LOI reduces the number of decisions that get made under time pressure during diligence.
A pre-LOI review
- Are three years of clean financials available and consistent?
- Has the after-tax outcome been modeled under likely deal structures?
- Has post-sale personal cash flow been reviewed at multiple proceeds levels?
- Are the transaction attorney, tax adviser, and financial adviser aligned?
Key takeaways
- The highest-leverage work happens before the letter of intent, not after.
- Financial statement quality affects both valuation and buyer confidence.
- Deal structure drives after-tax proceeds and is negotiated, not assumed.
- Personal planning belongs in the pre-sale process, not the post-close cleanup.
Sources
- Sale of a Business — Internal Revenue Service
This article is for general educational purposes and does not provide individualized financial, investment, tax, or legal advice. Consider your full circumstances and consult the appropriate professionals before acting.
