You’ve built something worth real money. Maybe you’re thinking of selling in two years, maybe in five. Either way, you want the best price and a sale that doesn’t fall over in due diligence.
The short answer: preparing a business for sale is mostly about your numbers. Buyers pay for profit they can trust, cash flow they can see and a business that runs without you. Start two to three years out, clean up your bookkeeping, fix the profit leaks and build a track record that holds up when a buyer’s accountant starts digging.
Here’s what buyers actually check, how it affects your price, and a step-by-step plan to get ready.
In short:
- Buyers value your business on profit they can verify, so clean, monthly bookkeeping is the foundation.
- Expect a buyer to ask for at least three years of tax returns and profit and loss statements.
- Every adjustment you can’t prove with records is an adjustment a buyer will ignore, and that comes off the price.
- A business that depends on the owner, or on one big customer, is worth less to most buyers.
- A virtual CFO or proactive accountant can run a mock due diligence well before you go to market.
What do buyers check before buying a business?
Buyers check whether your profit is real, repeatable and transferable. In practice that means your financial records, your cash flow, your customers, your people and your legal obligations.
The Queensland Government’s due diligence checklist for buyers is a good guide to what a careful buyer will ask for. It lists a minimum of three years of tax returns, profit and loss statements over three years or longer, balance sheets, debtor and creditor records, GST records, loans and overdrafts, and payroll, PAYG and super records. It also warns buyers that sales and cash flow figures may be inflated, so expect them to test yours against bank statements and industry benchmarks.
Here’s how that looks from the buyer’s side of the table.
| What buyers check | What they’re really asking | What good looks like |
|---|---|---|
| Three or more years of P&L and tax returns | Is profit stable or growing? | Accounts that match lodged returns, with clear reasons for any dips |
| Monthly management reports | Do the owners actually know their numbers? | Reconciled Xero files, closed off every month |
| Debtors and creditors | How much cash is tied up, and is any of it bad debt? | Low, steady debtor days and no disputed invoices |
| BAS, PAYG and super | Are there hidden ATO or employee liabilities? | All lodged and paid on time, with no payment plans in arrears |
| Customer list | Will revenue walk out the door after settlement? | No single customer dominates sales, and key contracts are in writing |
| Team and roles | Does the business run without the owner? | A manager or team who handles day-to-day decisions |
Why does clean bookkeeping change the price?
Clean bookkeeping changes the price because a buyer will only pay for profit they can prove. If your books are messy, they’ll either discount the price, ask for a bigger retention, or walk away.
Most business sales start with a measure of profit called EBITDA (earnings before interest, tax, depreciation and amortisation). Sellers then “normalise” it by adding back one-off or personal costs, and taking out anything that won’t continue under a new owner. Those adjustments only count if your records support them.
This is where good monthly bookkeeping packages pay for themselves. Coded transactions, reconciled accounts and clear notes on unusual items turn your add-backs from a story into evidence.
Worked example: how unproven add-backs cost you
This is an illustrative example only. Real valuations depend on your industry, size, risk and the buyer.
Say you own a commercial electrical business turning over $8 million. Your reported EBITDA is $900,000. You and your adviser put together these adjustments:
- Add back a one-off legal dispute: +$60,000
- Add back personal costs run through the business: +$25,000
- Take off the gap between your own wage ($90,000) and what a new owner would pay a general manager to replace you ($190,000): minus $100,000
Your normalised EBITDA is $885,000.
Now say the buyer’s accountant can’t match the $85,000 of add-backs to invoices or records, because they were coded to general expenses years ago. They ignore them. The buyer now sees $800,000.
If the buyer is applying an earnings multiple of 4 (a number we’ve picked just for this example), that $85,000 gap knocks $340,000 off the price. The cost of that untidy coding is far more than the cost of good bookkeeping over the same years.
Notice the wage adjustment too. Many owners underpay themselves, which makes profit look higher than it really is. A good buyer will spot it, so it’s better to model it honestly up front.
How far ahead should you start preparing a business for sale?
Start two to three years before you want to sell. That gives you enough time to build the three-year track record buyers ask for, and to fix problems while they can still show up in the results.
Some things also take longer than owners expect. Business.gov.au notes that licence transfers can take up to 12 months. Leases, supplier agreements and key staff arrangements can take time to sort out as well.
If you’re only 6 to 12 months away, you can still make a difference. Focus on the records, any ATO arrears, and the quick profit wins.
A 10-step plan to get your business sale-ready
Here’s the order we’d work through with an owner who’s planning an exit. Each step builds on the one before.
- Set your goal. Decide your target timeframe, the price you need, and whether you plan to stay on for a handover.
- Get a baseline. Have someone review your last three years of accounts the way a buyer would. Our Comprehensive Business Review is built for this kind of health check.
- Clean up the books. Reconcile every account, fix miscoded expenses and close off each month on time from now on.
- Separate personal costs. Stop running personal spending through the business, and keep clear records of any past items you’ll want to add back.
- Clear ATO and super issues. Lodge and pay BAS, PAYG and super on time. Outstanding tax debt is one of the first things a buyer will query.
- Fix the profit leaks. Review pricing, job costing, wages and overheads. Our guide on how to improve profit margins is a good place to start.
- Tighten working capital. Bring debtor days down and keep stock and work in progress under control. Buyers look at how much cash the business needs to run.
- Reduce owner dependence. Document key processes and hand customer relationships and daily decisions to your team.
- Spread customer risk. If one customer is a large share of sales, work on winning others and put key arrangements in writing.
- Run a mock due diligence. Six to twelve months out, have your virtual CFO or accountant pull together the data room a buyer will ask for and fix the gaps they find.
What makes a business worth less to a buyer?
A business is worth less when a buyer sees risk they can’t measure. The most common risks we see are owner dependence, unclear numbers, lumpy cash flow and hidden liabilities.
Owner dependence
If every quote, key customer and supplier relationship runs through you, the buyer is really buying your job. They’ll either pay less or ask you to stay on for longer, often with part of the price tied to future results.
Cash flow that doesn’t match profit
Plenty of businesses report a good profit but are always short of cash. Buyers notice. If that sounds familiar, read why profitable businesses still run out of cash and fix the cause before you go to market.
Hidden liabilities
Unpaid super, BAS arrears, underpaid award entitlements and unrecorded leave balances all come out in due diligence. When they do, they usually come off the price, or get held back from your settlement until they’re resolved.
Do you need a virtual CFO to sell a business?
You don’t need one, but most owners who sell well have someone playing that role. A broker finds and negotiates with buyers. A lawyer handles the contract. A virtual CFO, sometimes called an outsourced or fractional CFO, gets the numbers ready so they stand up to scrutiny.
“An accountant shows you what already happened. A CFO shows you what to do next.”
That difference matters in an exit. A compliance accountant will make sure your returns are lodged. A proactive accountant or CFO advisor will look at your results through a buyer’s eyes, years ahead, and help you lift the profit and cash flow a buyer pays for. For many owners, an outsourced finance team that combines bookkeeping and CFO support covers both needs without the cost of hiring in-house.
To be clear about our role: we help owners plan and prepare for a sale, but we aren’t business brokers. We’re happy to work alongside your broker, lawyer and tax adviser.
Common questions
How many years of financials do buyers want to see?
Most buyers want at least three years of profit and loss statements and tax returns. Government due diligence guides recommend three years as a minimum, and some buyers will ask for more if results have moved around. Monthly management reports for the current year help too.
Can I sell a business that has ATO debt?
Yes, but it complicates the sale. A buyer will usually want any tax debt cleared at or before settlement, often out of the sale proceeds. It’s far better to get on top of it early and show a clean record of on-time lodgements and payments.
Will selling my business mean paying capital gains tax?
Capital gains tax and GST may apply when you sell a business. Small business CGT concessions may also be available if you meet the eligibility rules, such as the ATO’s $6 million maximum net asset value test. The rules are detailed, so get tax advice for your situation well before you sign anything.
Should I tell my staff I’m planning to sell?
That depends on your timing and your team, and there’s no single right answer. Many owners keep plans confidential until a sale is close, while building up key people so the business runs well without them. If you do sell, you have obligations to employees, such as written notice when employment ends, so plan for that with your adviser.
Want a clear plan to get your business sale-ready?
We help owners of growing Australian businesses get their numbers in shape years before a sale, so buyers see a business they can trust. Book a free call to talk through your timeline, or look at our CFO packages to see how a virtual CFO could support your exit plan. If you’d like to start on your own, grab our free Excel template, Run your business with Complete Financial Clarity.
Related reading
- How to prepare your financials for a business loan
- How to improve profit margins in a small business
This article is general information only and doesn’t take your circumstances into account. Speak with a qualified adviser before making decisions.
French 
English (United States)