Selling a business is a major financial decision.

For many owners, years of work, investment, and growth are represented in the business they have built. But when it is time to sell, buyers will want to understand exactly what they are purchasing and whether the business can continue performing without the current owner.

Preparing to sell isn’t simply about finding a buyer and agreeing on a price.

It is about making sure the business is financially organised, commercially attractive and ready to withstand detailed due diligence.

The earlier you start preparing, the more time you have to identify issues, improve the business and understand its potential value.

Why Should You Prepare Before Selling Your Business?

Some business owners wait until they have found a potential buyer before getting their financial information organised.

That can create unnecessary pressure.

A buyer may want to review:

• Financial statements
• Tax records
• Cash flow
• Customer information
• Supplier arrangements
• Employee costs
• Assets
• Liabilities
• Contracts
• Business systems
• Historical performance

If records are incomplete or difficult to understand, the buyer may have concerns even if the underlying business is strong.

Preparing early gives you time to address problems before they become part of negotiations.

1. Review Your Financial Statements

Start with the core financial records.

Review several years of:

• Profit and loss statements
• Balance sheets
• Cash-flow information
• Management accounts
• Business activity statements
• Tax returns

Look for trends in:

• Revenue
• Gross profit
• Gross margin
• Operating expenses
• Net profit
• Cash flow

You should be able to explain significant changes from one period to another.

A buyer is likely to ask questions about unusual increases or decreases, so understanding the story behind your numbers is important.

2. Make Sure Your Financial Records Are Up to Date

Before selling, your accounting records should be as clean and current as possible.

Check that:

• Bank accounts are reconciled
• Accounts receivable are accurate
• Accounts payable are accurate
• Loans are correctly recorded
• Assets are properly recorded
• Payroll records are up to date
• Tax obligations are properly accounted for

A buyer should be able to understand the financial position of the business without having to untangle years of incomplete records.

3. Understand Your True Profitability

Revenue can make a business look impressive, but buyers are generally interested in the earnings the business can realistically generate.

Review:

• Gross profit
• Gross margin
• Operating profit
• Net profit
• Cash flow
• Earnings trends

Also identify unusual or one-off items.

For example:

• One-time legal costs
• Major repairs
• Exceptional expenses
• Owner-specific costs
• Non-recurring income

An accountant may help you identify adjustments that provide a clearer view of the business’s underlying financial performance.

4. Understand Your Normalised Earnings

A buyer may want to understand what the business could earn under normal operating conditions.

This can involve adjusting historical results for items that are unlikely to continue after the sale.

Examples might include:

• Personal expenses run through the business
• Above-market owner remuneration
• One-off professional costs
• Unusual repairs
• Non-recurring revenue
• Temporary expenses

The purpose isn’t to artificially increase profit.

It is to provide a reasonable representation of the business’s maintainable earnings.

Any adjustments should be properly supported and transparent.

5. Review Your Cash Flow

A business with strong reported profits should ideally also have a cash-flow story that makes sense.

Review:

• Operating cash flow
• Customer payment timing
• Accounts receivable
• Supplier payments
• Working capital
• Capital expenditure
• Debt repayments

If the business generates profit but consistently struggles with cash, understand why.

A prospective buyer may investigate this closely.

6. Clean Up Your Accounts Receivable

Outstanding customer invoices can affect the attractiveness of a business.

Review:

• Total receivables
• Overdue invoices
• Bad debts
• Customer payment history
• Old outstanding balances

Consider whether old debts are realistically recoverable.

You should also understand how outstanding receivables will be treated in the proposed transaction.

The sale agreement should clearly establish what happens to these balances.

7. Review Your Accounts Payable and Liabilities

Buyers will also want to know what the business owes.

Review:

• Supplier balances
• Loans
• Equipment finance
• Credit cards
• Employee entitlements
• Tax obligations
• Other liabilities

Make sure there aren’t unexpected obligations sitting outside your regular financial reporting.

Unresolved liabilities can complicate negotiations and potentially affect the transaction.

8. Review Your Tax Position

Tax records are an important part of the financial history of a business.

Make sure relevant obligations and records are up to date, including where applicable:

• Income tax
• GST
• PAYG withholding
• Superannuation
• Payroll tax
• Other statutory obligations

Resolve outstanding issues where possible.

Buyers and their advisers may review tax records during due diligence, and unresolved matters can create uncertainty.

The tax consequences of selling will also depend on the business structure and transaction.

Professional tax advice should therefore be obtained before proceeding.

9. Understand What Your Business Is Worth

Before putting the business on the market, understand how its potential value might be assessed.

Business valuation can consider:

• Earnings
• Assets
• Cash flow
• Industry
• Customer base
• Growth prospects
• Risk
• Market conditions
• Business structure

Different businesses may be valued using different approaches.

Do not rely solely on an informal estimate or an asking price from another business.

An appropriate valuation approach should reflect the characteristics of your particular business.

10. Reduce Unnecessary Business Expenses

Look carefully at your operating costs.

Some expenses may be necessary.

Others may provide limited value.

Review:

• Software subscriptions
• Advertising
• Insurance
• Vehicles
• Office costs
• Professional fees
• Contractors
• Unused services

Reducing unnecessary expenses can improve efficiency and potentially strengthen profitability.

However, avoid cutting costs that are important to maintaining the business’s revenue, staff, customer relationships or long-term value simply to improve short-term results before a sale.

11. Review Customer Concentration

A business that depends heavily on one or two customers can carry greater risk for a buyer.

For example, if one customer represents 40% of annual revenue, a buyer may ask:

What happens if that customer leaves?

Review:

• Top customers
• Percentage of revenue by customer
• Customer retention
• Contract terms
• Contract expiry dates
• Customer relationships

If revenue is well diversified, this can provide greater confidence in the sustainability of the business.

12. Review Supplier Dependence

The same principle applies to suppliers.

Ask:

• Are there critical suppliers?
• Are there alternative suppliers?
• Are supplier contracts transferable?
• Are prices stable?
• Are payment terms favourable?

If one supplier is essential to the business, understand the risks associated with that relationship.

13. Reduce Owner Dependence

This is one of the most important areas to consider before selling.

If the business depends heavily on you personally, a buyer may question whether the same revenue and profit can continue after you leave.

Consider whether:

• Customers primarily deal with you
• You personally generate most sales
• You approve every important decision
• You hold critical relationships
• You are responsible for most operational knowledge
• Employees depend on you for daily management

A business with documented systems and a capable team may be easier for a buyer to transition into.

14. Document Your Business Processes

Document important processes before a sale.

These may include:

• Sales procedures
• Customer onboarding
• Supplier management
• Payroll
• Financial procedures
• Inventory management
• Marketing
• Customer service
• Operational workflows

The more transferable the business is, the easier it may be for a buyer to understand how it operates.

15. Review Your Employees and Staffing Costs

Employees can be one of the most valuable assets of a business, but employment obligations also need to be understood.

Review:

• Payroll costs
• Employee entitlements
• Employment agreements
• Key staff
• Staff turnover
• Contractor arrangements
• Superannuation obligations

Identify whether any key employees are essential to maintaining business performance.

16. Check Your Contracts and Agreements

A buyer will want to understand the agreements that support the business.

These may include:

• Customer contracts
• Supplier agreements
• Property leases
• Equipment leases
• Software agreements
• Franchise agreements
• Employment agreements
• Distribution agreements

Determine which agreements can be transferred to a buyer and whether consent is required.

Legal advice may be appropriate when reviewing contractual arrangements.

17. Review Your Assets and Inventory

Prepare a clear list of the assets included in the sale.

Depending on the business, these could include:

• Equipment
• Vehicles
• Technology
• Furniture
• Inventory
• Intellectual property
• Websites
• Domain names
• Software
• Brand assets

Review the condition and relevance of these assets.

For inventory-based businesses, identify slow-moving or obsolete stock before negotiations begin.

18. Protect Your Intellectual Property and Digital Assets

Modern businesses may have significant value in intangible assets.

Consider:

• Trademarks
• Brand names
• Websites
• Domain names
• Customer databases
• Software
• Digital accounts
• Content
• Intellectual property

Make sure ownership is properly documented.

A buyer needs confidence that the assets being sold actually belong to the business and can be transferred appropriately.

19. Prepare for Financial Due Diligence

A serious buyer may conduct detailed due diligence.

They may ask for:

• Financial statements
• Tax records
• Bank information
• Customer information
• Supplier information
• Employee records
• Contracts
• Asset registers
• Debt information
• Forecasts

Preparing these documents in advance can make the process smoother.

It can also highlight potential issues before the buyer discovers them.

20. Prepare a Realistic Business Forecast

Historical performance is important, but buyers may also want to understand future potential.

Prepare realistic forecasts covering:

• Revenue
• Gross margin
• Operating expenses
• Profit
• Cash flow
• Working capital
• Planned investments

Avoid overly optimistic assumptions.

A forecast should be supported by reasonable evidence such as existing contracts, historical performance, customer trends and known business opportunities.

21. Consider the Timing of the Sale

The timing of a business sale can influence how the business is perceived.

If possible, consider selling when:

• Financial performance is stable
• Revenue trends are positive
• Profit margins are healthy
• Systems are documented
• Key employees are in place
• Customer relationships are strong

You cannot control every market condition, but preparing the business before selling gives you more flexibility around timing.

22. Think About What a Buyer Will Ask

Put yourself in the buyer’s position.

Ask:

Why is the owner selling?

Is the revenue sustainable?

Are the profits genuine and repeatable?

How dependent is the business on the owner?

What risks could reduce future earnings?

How much working capital does the business require?

Are there outstanding liabilities?

Can the business continue operating after the current owner leaves?

If you can answer these questions clearly, you’ll be better prepared for the sale process.

A Financial Checklist Before Selling Your Business

Before taking your business to market, consider reviewing:

• Several years of financial statements
• Revenue and profit trends
• Gross and net profit margins
• Normalised earnings
• Cash flow
• Accounts receivable
• Accounts payable
• Debt and liabilities
• Tax obligations
• Working capital requirements
• Customer concentration
• Supplier concentration
• Employee costs and obligations
• Business contracts
• Assets and inventory
• Intellectual property
• Owner dependence
• Business systems and processes
• Business valuation
• Financial forecasts
• Potential buyer due diligence requirements

The earlier you work through this checklist, the more time you have to address potential issues.

Should You Fix Every Problem Before Selling?

Not necessarily.

Some issues may be minor and have little effect on the value or saleability of the business.

Others may have a significant impact.

The important thing is understanding which issues matter.

For example, a small software subscription may not concern a buyer.

But declining profit margins, unresolved tax obligations, or excessive dependence on one customer could materially affect the transaction.

Professional advice can help you prioritise what needs attention.

How Can an Accountant Help Before You Sell?

An accountant can help you prepare the financial side of the business before it goes to market.

This may include:

• Reviewing financial statements
• Analysing profitability
• Normalising earnings
• Reviewing working capital
• Assessing cash flow
• Identifying financial risks
• Preparing forecasts
• Assisting with valuation considerations
• Organising due diligence information
• Helping you understand potential tax implications

At Latitude Accountants, we help Australian business owners understand their financial position and prepare for important business decisions.

Selling a business isn’t just about finding someone willing to pay a certain price.

It’s about being able to demonstrate why the business is worth that price.

Frequently Asked Questions About Selling a Business

How long should I prepare before selling my business?

There is no universal timeframe. Ideally, preparation should begin well before the business is formally put on the market. This gives you time to improve financial records, address issues and strengthen business systems.

What financial records will a buyer want to see?

Buyers may request financial statements, tax records, management accounts, cash flow information, accounts receivable, accounts payable, debt information, and other supporting records as part of due diligence.

Should I get my business valued before selling?

Obtaining an appropriate valuation or valuation advice can help you understand the business’s potential value and establish realistic expectations before entering negotiations.

What is normalised profit when selling a business?

Normalised profit attempts to show the sustainable underlying earnings of the business by adjusting for unusual, one-off or owner-specific items where appropriate.

Does owner dependence affect business value?

It can. If a business relies heavily on the current owner’s personal relationships, knowledge or daily involvement, a buyer may perceive greater transition risk.

Should I reduce expenses before selling?

Reviewing unnecessary expenses can improve efficiency, but cutting costs that support revenue, employees or customer relationships may ultimately harm the business. Cost reductions should be considered carefully.

What happens during financial due diligence?

A buyer and their advisers may examine the business’s financial records, profitability, cash flow, assets, liabilities, tax position, customers and other relevant information to assess the financial condition and risks of the transaction.

Should I speak to an accountant before putting my business up for sale?

Yes. Getting financial advice early can help identify issues, organise records, assess financial performance and prepare you for the due diligence process.

Talk to Latitude Accountants Before Selling Your Business

Selling a business is one of the biggest financial decisions an owner can make.

Preparing early can help you understand the financial position of the business, identify potential issues and present a clearer picture to prospective buyers.

The goal isn’t to make the business look better than it is.

It’s to ensure the financial information is accurate, understandable and supported by a business that is genuinely prepared for the next stage.

Latitude Accountants provides accounting, tax planning, business advisory and financial services to help Australian business owners make informed decisions throughout the life of their business.

If you’re considering selling your business and want to understand what you should review before going to market, our team can help.

Latitude Accountants

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Want tailored business advice? Let’s chat.

Disclaimer

This article provides general information only and does not constitute financial, accounting, tax, legal, valuation or business advice. The process of preparing a business for sale will vary depending on the business structure, industry, size, transaction type and individual circumstances. Business valuations, tax outcomes and sale processes can involve complex considerations. You should seek advice from appropriately qualified professionals before making decisions regarding the sale of a business.