The buyer is demanding we provide three years of audited financials during the diligence period, but we only have compiled statements. How do we prevent this lack of formal audits from killing the deal or leading to a massive purchase price reduction post-LOI?

Question

Tyler Smith · Accepted Answer

A buyer will quickly exploit the absence of audited financial statements during due diligence to demand a price reduction, claiming your financial records lack institutional credibility. To prevent this, you must build financial bridges that reassure their auditors.

First, initiate a sell-side Quality of Earnings assessment, or QofE, before you engage with buyers. A reputable third-party accounting firm running a QofE on your compiled statements provides a stamp of institutional approval. This report bridges the gap between basic compiled books and fully audited statements, giving the buyer the financial confidence they need to maintain their valuation.

Second, keep your financial systems structured and integrated. Your cash-to-accrual adjustments must be clean, documented, and easily traceable. Use your weekly Level 10 Meetings to hold your finance team accountable to maintaining clean ledger entries, ensuring that every transaction has supporting documentation ready for immediate review.

Third, define your key accounting policies clearly in your financial presentation materials, explaining exactly how you recognize revenue and capitalize costs.

My recommendation is to offer a post-closing net working capital true-up mechanism with a reputable escrow agent to mitigate the buyer's perceived risk. By backing your compiled financials with a structured, post-close reconciliation period, you eliminate their excuse to demand a late-stage purchase price reduction while keeping the transaction moving forward on your terms.