176: Before You Talk to Buyers: Financial Readiness, Valuation & Buyer Trust (Exit Series · Part 2 of 3)
Clean Financials Are The Foundation — Buyer-Ready Financials Protect Your Valuation
Before You Talk to Buyers
Financial Readiness, Valuation & Buyer Trust
Last week in Part 1, we talked about clarity — understanding why you want to sell before you ever talk to buyers. Because “I want to sell” can mean very different things depending on the season, the pressure, or the motivation behind it.
But once you move beyond clarity and start preparing for market, the conversation shifts. It becomes less about intention and more about credibility.
This week, we’re focusing on financial readiness — and how buyers determine what your business is actually worth. When you go to market, buyers aren’t purchasing your story or your effort. They’re underwriting your financial reality. They’re evaluating risk, testing consistency, and looking for anything that makes future cash flow less certain.
The difference between how you view your business and how a buyer models it is often where valuation moves — up or down.
Clean Financials vs. Buyer-Ready Financials
Why Reconciled Isn’t Enough
Most owners say something like this: “Our books are reconciled to the penny. We’re good.”
Reconciled is important. But reconciled isn’t the same as buyer-ready.
As Cameron explained, clean financials mean:
Monthly reconciliations
Proper categorization
Clear trends
No massive year-end “December dumps”
Financials that are easy to interpret
Buyer-ready financials go further. They’ve been tested, rebuilt, and scrutinized through the lens of how buyers think.
Because once you go under Letter of Intent, the buyer will bring in experts. And those experts are going to ask questions.
If your financials shift year-to-year…
If margins swing wildly…
If journal entries appear inconsistent…
Confidence drops. And when confidence drops, multiples drop.
The Quality of Earnings Conversation
The Report That Changes Valuation
This is where Quality of Earnings (QoE) comes in. A QoE firm essentially rebuilds your financial story.
They identify:
True EBITDA
Evaluate add-backs (non-recurring or owner-specific expenses)
Analyze margin trends
Review customer concentration
Assess revenue consistency
Calculate adjusted EBITDA
Cameron was direct:
“Don't wait until you're under due diligence to get your quality of earnings done before you go to market.”
Buyers will perform their own quality of earnings during due diligence. The difference is whether you walk into that process prepared or reactive.
You want to walk in knowing:
What your real adjusted EBITDA is
What can be defended
What cannot
Where risk lives
Entering negotiations with a clear-eyed view of these figures allows you to control the narrative—because in this math, valuation is multiplicative. If adjusted EBITDA increases by $500,000 and your multiple is 3x, that’s a $1.5 million difference in purchase price.
That’s not rounding error. That’s preparation.
Understanding Multiples
Why Risk Drives Valuation
You’ve probably heard someone say, “I sold for 12x.”
But 12x of what?
When owners talk about multiples, it sounds impressive — but it rarely includes context. Twelve times adjusted EBITDA in a fast-growing, recurring revenue business is very different from twelve times earnings in a flat or inconsistent one.
Multiples are shorthand. Buyers are not purchasing your EBITDA number. They are building models of what they believe your business will generate over the next five to ten years and discounting those projected cash flows based on perceived risk.
And that’s the key:
Risk drives valuation.
A buyer may initially offer 7x based on what they see. But once due diligence uncovers customer concentration, inconsistent margins, or management gaps, the risk profile changes. They may return and say, “We can’t pay 7x. We can pay 5x.”
That shift can happen quickly.
If growth is consistent, margins are stable, customers are diversified, and the business doesn’t depend entirely on you — perceived risk goes down.
When risk goes down, multiples go up. When risk increases, multiples compress.
The number you hear in conversation rarely tells the full story. The trajectory, predictability, and risk profile behind it are what buyers are truly underwriting.
The Bottom Line: Valuation isn't just about profit; it's about the certainty of future cash flow
Red Flags That Lower Value
What Buyers Notice Immediately
A few common financial red flags:
Customer Concentration
If a significant percentage of revenue sits with one client, buyers worry about losing it post-sale.Inconsistent Gross Margins
If margins swing from 70% to 50% without explanation, that creates uncertainty.Aggressive Add-Backs
If you claim expenses won’t carry forward, buyers will ask why they exist now.End-of-Year Adjustments
Large December corrections signal poor financial discipline.
Each of these increases perceived risk — and perceived risk lowers valuation.
If You’re 1–3 Years Away
Where to Start Now
If you’re one to three years from selling, here’s the order:
Get clean, up-to-date monthly financials.
Eliminate “December-only” adjustments.
Improve margin consistency.
Reduce customer concentration if possible.
Plan for a Quality of Earnings six months before going to market.
Cameron said it clearly:
“Get clean up to date financials.”
Clean financials improve exit readiness:
Exit readiness
Bank relationships
Tax clarity
Operational confidence
Succession flexibility
And here’s the deeper truth. Even if you don’t plan to sell… You will exit one day.
Understanding the value of your largest asset isn’t just exit planning — it’s stewardship.
Grow With Purpose
Financial readiness isn’t just about maximizing price. It’s about removing surprises, building credibility, and leading with clarity.
If you want to grow with purpose, you don’t wait until a deal is on the table to understand your numbers. You build trust long before the buyer ever shows up.
In Part 3, we’ll talk about what happens inside due diligence and how to navigate the process once you’re under LOI.
If this episode raised questions about your financial readiness, start with one simple action: review your last 12 months of financials and ask yourself whether you would trust this story if you were the buyer.
If you found this helpful, subscribe to Grow With Purpose and download the leadership guide in the show notes.
Let’s build businesses that are valuable — not just busy.
The Bottom Line: You don’t get paid for the work you’ve done; you get paid for the
certainty of the cash flow the buyer will receive. Clean financials remove the risk discount.
References and Downloadable Resources
Episode 175: Before You Talk to Buyers: Why Most Business Exits Fail Before They Start (Exit Series · Part 1 of 3)
Purpose Driven Growth: Axis Outsourced Accounting
Episode 176: Leadership Guide — Financial Readiness, Valuation, & Buyer Trust