Why Records Matter More Than the Pitch
Buyers do not pay for potential. They pay for profit they can verify, and they verify it through documents. When a seller hesitates or the numbers do not agree, buyers assume there is something worse they have not found yet.
Lenders are stricter still. An SBA lender will match your tax returns to your financial statements line by line, and the loan amount follows whichever is lower.
The Core Package
- Three years of federal business tax returns, plus the current year to date
- Monthly profit and loss statements and balance sheets for the same period
- Bank statements that tie to reported revenue
- A list of add backs with receipts or payroll records behind each one
- Accounts receivable aging and a list of your largest customers by revenue
- Equipment list with rough ages and condition
- Lease, major contracts, licenses and permits
Common Problems and Fixes
Personal costs mixed into the business
Owners often run cars, phones and family insurance through the company. That is legal when handled properly, but each item must be documented so a buyer can add it back with confidence.
Owner draws treated as profit
Money moved from the business account to a personal account does not show on the profit and loss statement. It is not automatically cash flow. Your accountant should recast it so the earnings figure is clear.
Unreported cash
Income kept off the books saves some tax today but costs far more at sale time. At a multiple of 2.5, every dollar hidden is two and a half dollars missing from the price.
One time income counted as earnings
Proceeds from selling equipment, insurance payouts and loan funds are not operating income. Including them inflates profit, and buyers will find it in due diligence.
A Practical Timeline
Two years out, move to monthly closes with an accountant who prepares accrual statements. One year out, separate personal costs, document every add back and review the lease. Six months out, gather contracts and build the customer list.
Keep the company growing steadily during this period. A drop in sales scares buyers, and a sudden spike right before a sale makes them suspicious.
Colorado Records to Gather Too
Buyers will ask about state and local tax accounts. Pull your recent Colorado Springs sales tax returns, El Paso County personal property declarations and payroll filings.
Our page on the El Paso County personal property declaration explains what the county expects in the year you sell, and the Colorado tax status letter page covers the letter buyers often request.
Next Steps
Once the records are in order, see how buyers price an established business, then ask for a confidential valuation. A broker can tell you which gaps matter most for your industry.