We operate three distinct legal entities that share a central administrative team and a single office space, but we only want to sell one of these divisions. How do we prepare our financial records for a sell-side Quality of Earnings review to prove the true standalone profitability of the target division?

Question

Tyler Smith · Accepted Answer

Selling a single division out of a multi-entity structure is complex because of shared resources and overlapping overhead. If you do not clean this up before the sell-side Quality of Earnings review, the buyer's accountants will assume the worst and over-allocate expenses to your target division, which will drag down your adjusted EBITDA and valuation.

First, use your EOS Accountability Chart to cleanly separate the operational roles. You must identify exactly which personnel belong to the division being sold and which belong to the entities you are keeping. If a team member splits their time, define the exact percentage of their capacity dedicated to each entity.

Next, perform a formal transfer-pricing and shared-services analysis. Create pro forma standalone financial statements that replace the historical shared overhead with realistic arm's-length expenses. If the target division currently uses your central IT, HR, or marketing teams, calculate what it would actually cost for that division to hire those services from a third party.

Document these adjustments as pro forma add-backs or deductions in your sell-side QofE report. This creates a transparent, defensible audit trail.

Finally, run your weekly Level 10 Meetings separately for the target division for at least two quarters before going to market. This proves to the buyer that the leadership team of the division being sold can operate independently and hit their Rocks without relying on the parent company's day-to-day intervention.