**Episode 15 of the Business Growth and Exit Strategies Podcast**
If you are looking to get a loan, get an investor, sell part of your business, or sell all of your business, the concepts and strategies we talk about today are going to be highly valuable for you.
Messy books do not just reduce valuation. They kill deals.
Buyers do not pay for revenue they cannot trust. If your controller quit today and walked out the door, could someone else reproduce accurate monthly statements and closeouts by a specific date?
If the answer is no, you may have some problems on your hands.
## Financial Clarity Is Deal Fuel
Financial clarity is what moves the deal forward. High revenue with poor reporting creates uncertainty. Uncertainty becomes discounts, holdbacks, walk-aways, or we are never going to touch this thing at all.
Your job today is to rate your confidence on a scale of one to ten for your accounting. One being there is no way my accounting is accurate. Ten being my accounting is perfect and if we wanted to sell right now, I could drop the books on the table.
If you are anything below an eight, take this to heart.
## Trust Beats Size
Trust beats size when it comes to a deal for a buyer or for an investor.
Buyers want reliable, consistent numbers to underwrite debt, returns, and growth plans. There is Excel Eddie sitting in a cubicle waiting to drop your information into some sort of format to double check what you have said. If the ratios are not right, it is a ding against your valuation.
The way deals are graded typically looks like this:
– **A-level deal:** Everything is ready to go. This is what investors desire.
– **B-level deal:** A couple of things wrong with it.
– **C-level deal:** More than a couple of things wrong with it.
– **D-level deal:** We are not going to touch this possibly ever because there are lots of problems.
If your financial story is incoherent, the multiple gets reduced no matter what the top line is.
Smaller companies with clean financial reporting can out-multiple bigger ones with chaos. Chaos means you are going to lose money on your multiple.
## Clean Financials Equal Predictable Performance
Clean is not just the accuracy of the bookkeeping. It is:
– Consistent end-of-month close
– Clear revenue recognition
– Stable margins
– Forecasting that is credible
Buyers and investors pay for the ability to predict.
Your responsibility is to commit to a defined closing timeline. When are you going to close the books? When does it need to be done?
My belief is the books should be closed out on the eighth, ninth, or tenth of every month.
## The Story About Closing Books
As an advisor and consultant, it is not uncommon for me to go into a business and say the books really need to be closed out by the eighth, ninth, or tenth.
Owner is on board. Then we get to somebody at the bookkeeping level and they say it is impossible. We are backlogged. We cannot do it.
I go into answer mode. We are going to hire somebody fractional to get this done. Then the answer is no, we cannot do that because they are not going to understand our accounting. No, we cannot do that because I can get it done. No, we cannot do that because I cannot trust them.
For me, that raises flags.
## The Forensic Accountant’s Warning
When I was getting my MBA, my accounting professor was a forensic accountant and auditor for companies. He said when somebody cannot close out the books, it could be incompetency. It could be they are behind and not good at delegation. Those two things are real.
But he said sometimes it is nefarious. Sometimes it is because the books are being cooked. Sometimes because there is money being taken. Sometimes because there are shell games being played and the owners really do not know the financial state of the business.
If you want to be taken seriously by a buyer or investor, you should have a date and accept no excuses for it not being done.
## Speed Matters for Loans Too
You may say you are not looking to sell. That is okay. But if you are ever looking for a loan, the speed to have accurate books matters. If you can get into a bank and say here is everything we need and it is accurate and done right—great.
If you are going to bring in an investor—great. If you are looking to sell and you have history of closing out consistently on the eighth, ninth, or tenth for the last five, four, three years—those are the things buyers drool over.
## How Messy Books Show Up in Due Diligence
Messy books show up as:
– Inconsistent statements
– Missing schedules
– Unexplained variance
– The “we’ll get to that later” excuse
You get skepticism from investors and buyers because they are saying there might be a problem here. They are going to slow down the timeline or reduce the multiple.
What questions does your team routinely struggle with, and how could you get them to answer faster? This is going to help you get to your maximum multiple.
## Normalization and Add-Backs
Buyers are going to adjust your EBITDA. You are getting dinged and dented if you do not have information that is accurate.
When the story is clean and repeatable and you can tell the narrative—that is what they are looking for.
“Hey, we got questions about what is going on in October. What happened?”
“We changed up our process. We got a new CRM. That is an easy question to answer. We figured you were going to ask so we have it documented. Here are some footnotes for everything that was going on. We had this prepared for you because we figured you were going to ask.”
Build documentation and an add-back file with receipts and clear logic. Here is what we are looking at. Here is how we got to our answer. Here is how we got to our core thesis.
## The Cost of Cleanup
If a buyer or investor comes in and says I am going to purchase this company, they may back-charge you for the fix.
It may be we were going to give you a million dollars for your business but now we are going to take fifty thousand away. They price in what it is going to take to fix the reporting, the controls, and the processes after close.
Or this may come back in terms of holdbacks and clawbacks—you were not ready for us to buy your business.
It is better to put these systems in place now to get the maximum multiple.
## Audit-Like Discipline
You do not always have to be ready for a formal audit, but you do want audit-like discipline. Reconciliations, consistent categorizations, and clean support.
Buyer-grade reporting means you can answer “why” questions instantly.
Start your monthly balance sheet reconciliations if you have not done that already.
## Forecasting Credibility Is a Valuation Lever
Forecasting credibility can help you get a better multiple or reduce it if your forecasts are consistently wrong.
If your forecasts are consistently wrong, it is tough to make good decisions. Buyers will assume you lack control over your business.
Forecast accuracy means maturity is in the business and it reduces perceived risk.
Over the last six months, how close were you to your forecasted goals for revenue and margin? Were they off? Were they not on board at all?
If you are documenting as you go, remember buyers and investors are buying your history. If you can prove the trajectory is up—the proverbial hockey stick they teach in MBA courses—then you can go to bat and say I want a better multiple.
A standard deal is for a standard company. We have consistent growth year over year. The industry says ten percent and we are at twenty. We are a premium company and we want the money to pay for it.
## Working Capital Surprises Kill Trust
Excel Eddie is looking at working capital. Surprises kill trust:
– Unmanageable receivables
– Payables
– Inventory
– Cash flow volatility
Buyers do not just look at EBITDA. They are looking at the conversion it is going to take for them to get paid.
Track DSO, DPO, and inventory turns to explain variance if it comes up.
**DSO** is days sales outstanding. How long does it take for you to get paid? You deliver your product or service—how long to get paid? One day is amazing. Eighteen months is a problem.
I took on a consulting client whose DSO was eighteen months. They were financing deals for people without charging interest.
**DPO** is days payable outstanding. How many days are you sitting on a bill before you pay it? People who have not been trained in sophisticated bookkeeping pay bills instantly. The more sophisticated version is to negotiate longer terms so you can sit on money longer.
## Data Room Readiness
Preparation and data room readiness speeds up closes. If you can produce books and drop them on a table and say we are ready to go, the clean financials reduce diligence friction and keep momentum high.
If you do not know what a data room is, think of it like a secure Dropbox. A secured online folder on the cloud with passwords and encryption. Your financials go there. Your data about your business goes there. Excel Eddie loves data rooms.
Momentum preserves the leverage you have built. Slow diligence creates renegotiation windows you do not want. Clean data prevents re-trades late in the process where people come back and say we had a five multiple for you and now we are going to give you four.
## Your Systems Matter
If reporting depends on one person and their heroics, that is a risk.
Buyers and investors want repeatable financial processes with controls and documentation.
You should have SOPs. Your accounting team, your accountant, your bookkeeper should have SOPs. There should be a closeout date—an X date—for billing, expense approvals, and inputting data into your bookkeeping software.
Start small, but eventually you want everything done by a certain date with no exceptions.
—
📊 **Free Framework Assessments:**
– [SCORE Framework (Exit Readiness)](https://scottsylvanbell.com/score-framework)
– [SCALE Framework (Operational Readiness)](https://scottsylvanbell.com/scale-framework)
– [SELL Framework (Revenue Quality)](https://scottsylvanbell.com/sell-framework)
– [DRIVER Test (Execution Capability)](https://scottsylvanbell.com/driver-test)
🎙️ **Listen to this episode:**
Apple Podcasts: https://podcasts.apple.com/us/podcast/episode-15-why-clean-financials-matter-more-than-high/id1876771297?i=1000749879207
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YouTube: https://youtu.be/UVcBBhwCgm8
Podcast Transcripts:
f you’re looking to get a loan, bring in an investor, sell part of your business, or sell the entire company, this conversation matters. Messy books don’t just reduce valuation—they kill deals. Buyers don’t pay for revenue they can’t trust.
If your controller walked out today, could someone else reproduce accurate monthly statements and close the books by a specific date? If the answer is no, that’s a serious vulnerability.
Here’s the core thesis: financial clarity is deal fuel. High revenue with poor reporting creates uncertainty. Uncertainty leads to discounts, holdbacks, retrades, or walkaways.
Rate your accounting confidence from one to ten. One means there’s no way your numbers are accurate. Ten means you could drop your books on the table today and withstand scrutiny. If you’re below an eight, you have work to do.
Trust beats size in a deal. Buyers want reliable, consistent numbers to underwrite debt, returns, and growth plans. Somewhere in the buyer’s organization is someone ready to stress-test your financials. If the ratios don’t hold, your multiple gets dinged.
Deals often fall into tiers. An A-level deal is clean and desirable. A B-level deal has minor issues. A C-level deal has noticeable risk. A D-level deal may be untouchable. If your financial story is incoherent, your multiple drops—regardless of top-line revenue.
Clean financials mean more than accurate bookkeeping. They include consistent monthly close dates, clear revenue recognition, stable margins, and credible forecasting. Buyers pay for predictability.
Commit to a defined close timeline. My belief is that books should be closed by the eighth, ninth, or tenth of the month. Pick your date and stick to it. Excuses about backlog or complexity are warning signs. Sometimes delays are incompetence. Sometimes they’re something worse. Either way, discipline matters.
Even if you’re not planning to sell, speed and accuracy help with loans, investors, and strategic decisions. If you can demonstrate three to five years of consistent, timely closeouts, that builds enormous credibility.
Messy books show up in due diligence as inconsistent statements, missing schedules, unexplained variances, and delayed answers. That slows momentum and invites skepticism. Buyers may reduce the multiple or renegotiate terms.
Normalization and add-backs are part of the process. Buyers adjust EBITDA. If your documentation is unclear, those adjustments won’t go in your favor. Maintain an add-back file with receipts and logic. Anticipate questions and prepare footnotes explaining anomalies before they’re asked.
There’s also a cost to cleanup. Buyers may reduce the purchase price to account for post-close fixes. That reduction might be structured as a lower price, holdbacks, or clawbacks. It’s better to invest in cleanup now than to pay for it in valuation later.
You don’t always need a formal audit, but you do need audit-like discipline. Monthly reconciliations, consistent categorization, and clear support documentation are essential.
Forecast accuracy is a valuation lever. If your forecasts are consistently wrong, buyers assume you lack control. If you can demonstrate consistent growth that outpaces industry benchmarks, you can argue for a premium multiple.
Working capital matters. Buyers evaluate receivables, payables, inventory, and cash flow volatility. They look beyond EBITDA to understand how quickly earnings convert to cash.
Track metrics like days sales outstanding—how long it takes to collect payment. Long collection cycles strain cash flow and raise questions. Track days payable outstanding and negotiate terms strategically. Financial sophistication shows maturity.
Preparation speeds closing. A well-organized data room with clean financials, schedules, and documentation preserves leverage. Slow diligence invites retrades and renegotiation.
Your financial systems must not depend on one person’s heroics. Document processes. Create standard operating procedures for accounting. Define billing cutoffs, approval workflows, and reporting deadlines.
Common founder mistakes include mixing personal and business expenses, inconsistent coding, unclear owner compensation, and creative categorization. Ask yourself: would a buyer see your books as a decision tool or just a tax artifact?
Here’s a practical 90-day cleanup plan: standardize your chart of accounts, lock in a monthly close cadence, reconcile consistently, document add-backs, and build a rolling 13-week cash flow forecast. Assign ownership and enforce accountability.
If internal resistance slows progress, consider fractional help. You’ll pay either way—either proactively now or reactively during a crisis. It’s better to fix it on your terms.
You don’t need perfect books. You need trustworthy, explainable, and consistent ones.
This week, choose one financial friction point—close speed, reconciliations, add-back documentation, or forecast accuracy—and improve it.
The final question: could your numbers survive buyer scrutiny without you having to narrate them?