What a buyer actually looks at before they make an offer

Most owners spend their preparation time arguing about the multiple. Six times, seven times, what did the guy down the road get. It is the wrong fight. The multiple is set by your industry, your size, and your growth, and it moves within a fairly narrow band. The number the multiple is applied to moves a great deal more, and that number is decided by a process called a quality of earnings review.

A buyer will hire an accounting firm to spend three to six weeks rebuilding your earnings from source documents. Not from your tax return, and not from the summary you sent. From bank statements, invoices, payroll registers, and contracts. What comes out the other end is adjusted EBITDA, and it is almost never the number you started with.

Here is what they are actually doing.

They normalize what you pay yourself

If you take $400,000 out of a business that would pay a hired manager $150,000, the difference is added back. That helps you. If you pay yourself $80,000 because the business could not afford more, the difference is subtracted. That hurts. The same logic applies to family members on payroll, whether or not they show up.

Owners consistently expect the first adjustment and are surprised by the second. Both are standard.

They separate personal expenses from real ones

The truck, the phone, the country club, the trip that was half business. Legitimate add-backs exist and buyers accept them, but only where there is documentation. An add-back you can prove with an invoice is worth full value. An add-back you assert from memory is worth an argument, and arguments during diligence get settled somewhere below the middle.

If your business is worth five times earnings, a $60,000 add-back you cannot substantiate costs you $300,000. That is the whole reason to keep clean records for two years before you plan to sell.

They test whether your revenue is real and repeatable

Cash-basis books get converted to accrual. Revenue recognized when the check cleared gets moved to when the work was performed, and the difference between those two things can reshape an entire year. Deposits and progress billings get unwound.

Then they look at concentration. If one customer is thirty percent of revenue, the buyer is no longer valuing a business, they are valuing a relationship, and they will structure around that risk with an earnout or a holdback rather than pay for it up front.

They look for costs you have been deferring

Maintenance you postponed, equipment past its life, software that has not been updated in six years, a facility lease below market that resets next year. None of that shows up in EBITDA, and all of it shows up in the buyer's model as capital they have to spend after closing. It comes out of price.

What to do about it

• Clean the books two years early, not two months. Diligence covers a three-year lookback. Cleanup done during the process looks like cleanup done for the process.
• Document add-backs as they happen. A simple running schedule with the invoice attached is worth more than a perfect memory.
• Tie your P&L to your tax returns. When those two disagree, everything you say afterward gets tested twice.
• Get your personal expenses out of the business now. The cleanest version of this conversation is the one where there is nothing to explain.
• Know your own adjusted number before a buyer does. Owners who walk in with a defensible figure negotiate from it. Owners who do not, negotiate from whatever the buyer's accountant produces.

None of this requires hiring anyone. It requires deciding, well before you are ready to sell, that the version of your financials a stranger will rebuild is the version that matters.