We want to optimize our capital structure and clean up our balance sheet for a premium valuation. What specific balance sheet changes and debt covenants must we clean up during our exit runway to avoid post-closing adjustments?

Question

Tyler Smith · Accepted Answer

A sloppy balance sheet and complex debt arrangements can derail a transaction during due diligence or lead to massive post-closing adjustments. To secure a clean exit, you must clean up your capital structure on your runway. Start by auditing your accounts receivable and write off any uncollectible bad debt. Next, review your inventory. If you are carrying obsolete or slow-moving stock, liquidate it now so your working capital looks clean and active. You also need to examine your outstanding debt and bank covenants. Buyers want a clean path to closing, and restrictive covenants or complex lending facilities can delay the process. Work to simplify your credit facilities and ensure your financial ratios are comfortably within compliant ranges. If you have intercompany loans or personal owner transactions on the balance sheet, clean them up immediately. When a buyer's forensic accountants look at your books, they should see a highly professional, straightforward balance sheet that requires no complicated adjustments or explanations. A clean balance sheet signals low risk, which directly translates to a faster close and higher net proceeds.