How to clean up your books before selling your business

Oct. 6, 2023
​Read on web​

Negotiations for the sale of Carol Tice's online business were several weeks along when her buyer began to ask disturbing questions.

They’d compared net income from her business account with the P&L (profit and loss statements) for the membership platform she’d spent a decade building.

To her surprise, net revenue in the business account was lower than the P&Ls showed. A lot lower.

As they dug into the numbers, it became clear that the accountants she'd hired to help her prep the business for sale hadn't done the job properly. They'd misclassified some expenses and double-counted some revenue. The result was that Carol's business was revalued to a lower sale price.

She'd thought she’d done everything right. Instead, she had to accept $100,000 less than expected for her business.

We're fortunate Carol is willing to be honest about her experience, because there's a lot we can all learn from it.

How can other first-time sellers avoid the mistakes she made? We talked to a business broker and two accountants with expertise in prepping books for M&A, then compiled a 12-point checklist based on their advice.

Here's what they recommend:

​How to clean up your books before selling your business​

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Would you move states to save big on taxes?

Here's the most surprising thing about my (Lexi here!) interview with Matt Camrud, a Certified Financial Planner at Brighton Jones:

He said entrepreneurs sometimes move states ahead of a sale to save on taxes.

Perhaps this shouldn't surprise me, because I was talking to a founder a few months ago who did just that: he moved to Austin from California because he was aiming to sell his company in the next two years.

There are huge savings to be had with this strategy, especially if you move from a state with high income tax (like California, where you can pay up to 12% state tax on top of federal income tax) to a state with no income tax (like Texas or Tennessee).

But still, is it worth moving your life — maybe even your family — across the country to access those savings?

Would you do it?

(If you would do it, press reply and let me know, just for fun.)

We discuss the details of this residency tax reduction strategy in our conversation, which you can listen to via video or audio-only:

The fast track to patience ⏳

If you've left your job to grow a business, you know the pressure of trying to earn enough money to replace your salary.

Most of us have to earn a set amount within a certain window if we want to keep building.

In some ways, that pressure is a good thing. It pushes us to ship, rather than wait until our offer is perfect. It motivates us to think creatively about making progress. And it gives us a clear goal to work toward.

But the challenging part is, it takes time to figure things out. It takes time to learn how to create structure for yourself (since no one else is doing it for you); it takes time to figure out what you want to build; and it takes time to get a business to work.

You figure out a piece, then you pivot to accommodate... then you figure out another piece and pivot to accommodate... again and again.

Some people get lucky – or they've done it many times before so can take the fast track – and figure this out quickly.

But for most of us, it simply takes time.

This Twitter thread resonated on this topic. It's by a guy who left his high-paying corporate job to try his hand at a startup. Now, two years later, he expected the company to be much further along revenue-wise.

I nodded along reading it... because the truth is, no matter how you spin it, building a business takes time.

Sometimes patience – and the ability to creatively extend your runway – is the most important part.

See you next time,

Lexi Grant
Founder & CEO
​They Got Acquired​