Our financial records are clean, but our inventory valuation and capital expenditures have historically been handled loosely. How do we prepare these non-operating assets on our books so a buyer does not use them to hammer our enterprise value?

Question

Tyler Smith · Accepted Answer

Buyers look for any excuse to renegotiate the purchase price during due diligence. Loose inventory tracking and inconsistent capital expenditure reporting are prime targets. To prevent this, you must run your balance sheet through a rigorous Step by Step Exit Business Integrated Readiness review at least two years before listing. Begin by transitioning from cash or modified accrual accounting to full GAAP accrual accounting. This ensures your revenue and expenses are matched in the correct periods. For inventory, implement a strict physical cycle counting process managed by your finance seat. Ensure this metrics-driven routine is tracked weekly on your EOS® Scorecard. You must also establish clear capitalization policies that distinguish true capital expenditures from routine maintenance costs. If your capital expenditure reporting is messy, buyers will argue your capital requirements are higher than they actually are, which directly reduces your free cash flow calculations and lowers your multiple. Clean up your asset registers and run physical audits of your equipment. When you can present audited or highly scrutinized balance sheet data, you remove the buyer ability to discount your asset values.