IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Jacob Szeto of Vector Bookkeeping (https://vector-bookkeeping.com/):
Financial Credibility: The Silent Deal-Maker or Breaker
Why Your Books Matter to Potential Buyers
Strong accounting builds buyer trust, smooths diligence, and helps lock in your asking price.
When it comes to selling a business, financial credibility does more than support your asking price, it determines whether serious buyers engage at all. Your books tell a story, and buyers are listening closely. Sloppy accounting, inconsistent records, or vague categorizations don’t just raise questions, they trigger assumptions about how the business is run. Most buyers won’t wait around for explanations. In due diligence, everything is on the table, and if your financials can’t stand on their own, the deal either stalls or steeply discounts. Clean, accurate, and well-organized books signal a well-run operation, and in this market, businesses that are easy to understand are the ones that get bought.
Put yourself in a buyer’s position. You’re reviewing two businesses with similar revenue and industry positioning.
The first company’s books raise flags immediately. Revenue reported on the P&L doesn’t match what’s shown on tax returns. Loan balances don’t reconcile to the balance sheet. Payroll expenses are lumped together with contractor payments. Key vendors show up under generic categories, and fixed assets appear with no depreciation schedule. Every answer leads to another question, and none of it inspires confidence.
The second company’s records are organized and consistent. Revenue and tax filings line up. Payroll and contractor costs are clearly separated. Vendor payments are traceable. The balance sheet ties out, and depreciation schedules are current and clean. You’re able to move through the numbers quickly and focus on what actually matters: performance, risk, and potential.
By the end of the review, one business leaves you with doubts, the other with clarity.
All else being equal, which are you more likely to pursue?
What Buyers Look For
When buyers evaluate a business, they do more than glance at the bottom line. Their primary concern is the reliability and transparency of the financial records presented. Buyers meticulously verify that financial statements align with tax filings. Discrepancies between these documents raise immediate red flags about the accuracy and intent of the reporting.
Another critical point of evaluation is the chart of accounts. The chart of accounts plays a bigger role than most owners think. If key expenses are hidden in vague categories or spread inconsistently across accounts, it slows down the review process and makes buyers question how the business is being managed. They want to understand where the money is going and whether the structure of the accounts reflects the actual operation of the business.
While so much focus is put on the Income Statement, the Balance Sheet often goes neglected. But this is a big mistake, ultimately, the Balance Sheet will be scrutinized, and it needs to make sense. Buyers expect loan balances to be reconciled accurately, assets to be properly recorded, and owner compensation clearly documented. Even if the income looks strong, a weak or nonsensical Balance Sheet causes hesitation.
Additionally, buyers seek evidence that financial management is consistent and disciplined. Regular monthly reconciliations, uniform expense tracking, and clear documentation of any accounting adjustments build trust. Personal expenses or unique, one-time costs should not be obscured. Instead, they should be transparently labeled and easily explained.
The goal is not to be flawless. The goal is to be clear. When financial records are well maintained and easy to follow, buyers are free to focus on the business itself instead of sorting out the numbers.
Common Mistakes
Over the years, I have reviewed a lot of business financials. The same issues show up time and again, and they send the wrong message to buyers.
Bank and credit liability accounts are not reconciled.
One of the most common is unreconciled bank and liability accounts. If your bank or credit card statements do not match the books, then your financials cannot be trusted. Reconciliations confirm that every dollar moving in or out of the business has been accounted for. Without that, buyers will wonder what else has been overlooked.
Missing vendor names and inconsistent categorization of vendor expenses.
Another issue is missing vendor names and inconsistent categorization. Not all expenses are equal, and they should not be treated that way in your books. Vendor names should be assigned, and expense categories should be applied accurately and consistently. This helps buyers understand where money is being spent and allows them to evaluate supplier and contractor relationships during due diligence.
Mixing Personal Finances with Business Finances
Mixing personal and business finances is another red flag. Using the wrong card once in a while is one thing. But using the business to fund your personal life, or running personal charges through company credit cards, creates confusion and damages credibility. If you need money from the business, take a distribution. Keep it clean so there is no question about what the business actually earns or whether your add-backs are legitimate.
Bad Chart of Accounts
Is your Profit and Loss statement 200 lines? Is it 10 lines? There is a healthy balance that needs to be struck when it comes to designing and maintaining your chart of accounts. Most importantly is that your chart of accounts reflects your business model. For example, I often see business owners use a single sales account, but few businesses have only one income stream. These are the details that matter when reviewing financials. Buyers may want to evaluate performance by product or service line, and a generic sales category won’t help them do that.
Missing or Inaccurate Balances
Finally, balance sheet errors are common and damaging. Loans, inventory, and fixed assets are often missing or incorrect. Many businesses expense inventory instead of tracking it properly. Some fail to show loans at all. These gaps make it hard to evaluate the true value and cash flow of the business. If a buyer finds out during diligence that you failed to disclose a major liability like an SBA loan, the deal may not recover.
How to Prepare
Good books do not happen by accident. They are built over time through consistent practices, clear systems, and the discipline to treat accounting as a real part of running the business, not just a task at tax time. This is not something you can patch together a few weeks before going to market. If you want your financials to support a clean, confident sale, the work must start long before the listing.
If you are still in the early stages of your business, this is the time to build your books with a future sale in mind. If you are further along and your records are disorganized, start cleaning them up now. Waiting will only make the job harder. Accounting is best done as it happens. If you try to explain a charge from yesterday, you probably can. If that same charge happened three years ago, good luck. Trying to reconstruct vendor details or correct old categorizations years after the fact is inefficient and often impossible.
Preparing also means thinking ahead. If your systems are a patchwork of apps, spreadsheets, and workarounds, they will not scale. More importantly, they will not translate well to a buyer who needs to understand how the business operates. Constantly switching accounting platforms or separating your receivables into disconnected spreadsheets introduces confusion and risk. The buyer will see that, and they will price it in.
For most small businesses, a well-set-up QuickBooks file is more than enough. The key is to treat it as the single source of truth. If you add other tools, make sure they integrate cleanly. Avoid one-off fixes and shortcuts. The goal is to make your business easy to understand, not just for you, but for whoever comes next.
Clean books are a byproduct of clean systems. If you can stay consistent, stay organized, and think a few steps ahead, your business will be in a much stronger position when the time comes to sell.
What to Focus On
When you’re preparing to sell, clarity in your books becomes more important than technical perfection. Here are a few core principles that will carry most of the weight.
Consistency
First, focus on consistency. It is better to be consistently wrong than inconsistently correct. Inconsistent records make it impossible to understand what changed, when it changed, or why. But if your process is consistent, even mistakes are easier to trace and fix. Buyers are not expecting perfection, but they do expect a pattern they can follow.
Completeness
Completeness is just as important. Take the time to enter vendor names, customer details, bill numbers, memos, and check references. Financial statements that lack supporting details show a lack of care. More importantly, they remove the buyer’s ability to analyze the business. If they cannot tell who you paid or why, they are left guessing about how the business actually operates.
Book to Tax
Your books should also align with your tax filings. If you change entries in prior-year books without filing an amendment, you are asking for trouble. Buyers compare financials to tax returns. When they do not match, the buyer will assume something is being hidden, misclassified, or manipulated. If you find a legitimate error in a closed year, bring it to your CPA. They can advise whether it should be corrected in the current year or whether an amendment is necessary. Either way, do not break alignment.
Pro tip: Close your books after your latest period close to prevent accidental changes.
Clear Chart of Accounts
This is how you tell the story of your business. Make sure it tells the right story. Your chart of accounts should reflect how your business runs. It should separate income streams and distinguish between fixed and variable costs, or between direct and overhead expenses. Too much detail can be just as unhelpful as too little. A thoughtful chart of accounts shows that you understand your own business and that your numbers reflect that understanding. The easier it is for someone to follow the financials, the easier it is to trust them.
Help any reader of your financial statements (you or the buyer) understand how your business works by telling good story with a well thought out chart of accounts.
When to Get Help
Start as soon as you can. That is the honest answer, whether or not you are thinking about selling today. Good bookkeeping is not just about preparing for a sale. It helps you run a better business in the meantime.
When the time does come to sell, you do not want to be focused on getting the basics in place. Your attention should be on increasing value, not cleaning up old records. The goal is to present a business that is stable, profitable, and easy to evaluate. That means your time is better spent growing revenue, improving margins, and strengthening operations, not scrambling to figure out what happened three years ago.
If your books are not where they should be, get help. Cleaning things up now will save time, money, and stress later. It also ensures that when a buyer comes along, the work you have put in over the years is clearly reflected in the numbers.
Conclusion
Clean books are more than just a technical detail. They shape how buyers perceive your business and how confident they feel moving forward. Financial clarity reduces friction, builds trust, and keeps momentum in the deal. If your numbers are easy to follow, the entire process becomes smoother for you and for the buyer. Good bookkeeping is not just operational. It is strategic. And when it comes time to sell, it will show up where it matters most, in the offer.
If you have questions relating to the content of this article, Jacob Szeto, MBA, BS Economics, and founder of Vector Bookkeeping, would welcome inquiries. Vector Bookkeeping is a Portland-based firm specializing in accurate financial reporting, cleanup work, and sale-preparation bookkeeping for small businesses. Jacob can be reached at (503) 468-1840 vector-bookkeeping.com or jacob@vector-bookkeeping.com.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.