Our EBITDA looks healthy on paper, but we have multiple intercompany transactions and a few family members on the payroll who do not work full-time. What will a buyer's forensic financial due diligence team actually tear apart, and how do we clean this up on our runway?

Question

Tyler Smith · Accepted Answer

A sophisticated buyer is not going to just take your word for it or rely on your standard QuickBooks reports. Their forensic accounting team will dissect every single line item to find reasons to chip away at your valuation. They will look closely at intercompany transactions, owner-related expenses, and family payroll. They want to see what the business actually costs to run under normal conditions.

To prepare, you need to normalize your financial statements at least two years before you exit. If you have family members on the payroll who do not actively work in the business or do not meet the GWC™ standard for their seats, you need to remove them from the payroll immediately. For those who do work, ensure their compensation matches true market rate. Any intercompany transactions must be documented with clear, arms-length agreements.

Use your weekly Level 10 Meeting™ to review your financial Scorecard metrics with absolute precision. Work with your Integrator to identify any personal or non-operational expenses that still sit on the books. This is about building a historical track record of clean, audited, or reviewed financials. When a buyer sees two to three years of pristine, unarguable profit and loss statements, you eliminate their primary leverage for post-LOI price renegotiations.