I am exactly five years away from my target exit date and want to clean up our financials. How do I systematically eliminate owner discretionary expenses and clean up our cap table today so we do not trigger red flags during future due diligence?

Question

Tyler Smith · Accepted Answer

When you are five years out from an exit, your primary focus should be cleaning up the structural and financial details that can stall a transaction. Buyers will perform exhaustive due diligence, and any gray areas will be used to discount your valuation or walk away from the deal. Start by conducting a thorough audit of your capitalization table. If you have minor shareholders, silent partners, or former employees holding equity, you must clean up these holdings now. Draft clear buy-sell agreements or execute buyouts to consolidate ownership. This ensures you have total control when it is time to sign the deal. Next, address your financial reporting. If you have been running personal expenses, family member salaries, or discretionary country club memberships through the business to reduce tax liabilities, you must stop this practice. Transition these expenses back to your personal accounts immediately. While brokers can list these as add-backs to normalize your EBITDA, institutional buyers view excessive add-backs with extreme suspicion. They prefer clean, audited financial statements that require zero explanation. Five years is the perfect runway to establish a track record of spotless, institutional-grade books that present an undeniable picture of your profitability. By making these structural adjustments today, you remove friction and build trust with sophisticated buyers.