We have high revenues but our balance sheet carries legacy debt and complex intercompany transfers. How do we clean up our credit profile and financial benchmarks on our runway so we do not scare away conservative lenders during the buyer's due diligence?

Question

Tyler Smith · Accepted Answer

A messy balance sheet is a major red flag for institutional buyers and their lenders. During due diligence, any complex intercompany transfers or legacy debts will trigger intense scrutiny, potentially delaying or killing your deal. To prepare, look at the Credit and Benchmarking dimensions of the Step by Step Exit model. You need to systematically untangle these financial webs at least twenty-four months before going to market. Start by identifying all intercompany transactions. If you own multiple entities that share resources, expenses, or staff, separate these operations entirely. Establish clean, market-rate service agreements between the entities to reflect true standalone profitability. Next, address your legacy debt. Work with your leadership team during your quarterly planning sessions to prioritize paying down high-cost liabilities. Use your Scorecard to monitor your debt-to-equity ratio and working capital metrics closely. Finally, align your financial metrics with industry benchmarks. Buyers will compare your performance against top-quartile competitors. If your operating expenses are bloated due to historical legacy costs, use the IDS process to find and cut the waste. By presenting a clean, simplified balance sheet and matching top industry benchmarks, you de-risk the transaction for the buyer's lenders. This financial health not only secures a higher valuation but also provides you with cleaner reporting to run your business today.