Chapter 5: The Sell-Side Quality of Earnings

Why would I pay to audit my own numbers?

What sellers often miss

Many owners view financial diligence as something that happens after an LOI is signed. In reality, the strongest sellers begin diligence on themselves long before buyers enter the process. Every issue identified and addressed in advance is one less opportunity for a buyer to renegotiate value later.

The takeaway

Preparation creates credibility. Credibility creates confidence. Confidence preserves value. The earlier you identify and address financial issues, the more control you maintain throughout the transaction process.

Figure from The Sell-Side Quality of Earnings. Seller leverage typically peaks at the moment the LOI is signed. After that, exclusivity begins, the buyer field narrows to one, and leverage shifts quickly toward the buyer. — Seller leverage typically peaks at the moment the LOI is signed. After that, exclusivity begins, the buyer field narrows to one, and leverage shifts quickly toward the buyer.

Illustrative, not your deal. Where the book uses dollar figures, they are there to show how something works, not to describe your business. Your banker, your accountant, and your attorney will put real numbers to your own situation. Full note.

Terms this chapter uses

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Rule 5

Find your own problems before the buyer finds them.