Burkland Brief:
- Clean books are an asset, not just for a sale, but for everyday business performance and strategic optionality.
- Investors and acquirers notice sloppy financials—and penalize them.
- A regular internal audit of your accounting, tax, and payroll records can uncover hidden risks and boost valuation confidence.
- Burkland’s M&A experts can help you stay ready, whether you’re months or years away from a transaction.
You don’t have to be preparing for a sale to benefit from a deal-ready finance function. Clean, complete records give you faster insights, better decision-making, and credibility in every strategic conversation.
And when the right opportunity does come knocking from a buyer, an investor, or a new partner you won’t be caught scrambling. You’ll be ready.
Your Internal Financial Readiness Audit Checklist
This comprehensive readiness checklist reflects what investors and acquirers want to see across accounting, tax, payroll, and supporting systems. It’s also a useful framework for internal health checks, even if you’re not planning a sale in the near future.
1. Accounting
- Accrual-basis financials closed monthly, with variance analysis
Buyers and investors expect accrual accounting, not cash-basis books. Monthly close should include a review of budget-to-actuals with explanations for variances. - Revenue recognition compliant with ASC 606
Ensure you’re recognizing revenue when you’ve actually delivered the goods or services. ASC 606 lays out specific rules for how and when to record revenue, especially for contracts with multiple deliverables or subscription terms. Mistakes here are a common red flag in diligence, especially for SaaS and service-based businesses. - Audit trail and documentation for material transactions
Every major transaction (loans, asset purchases, write-offs, accruals) should be supported with contracts, board approvals, or reconciliations. No guesswork. - A clean, scalable chart of accounts
Eliminate legacy accounts, duplicates, and vague line items. Keep the chart structured by function (not employee preference) to enable easier rollups and due diligence. - Deferred revenue and prepaid expense schedules maintained
These accounts are often neglected and can be a source of costly cleanup. Ensure proper amortization and regular reconciliation. - Capitalization policy documented and applied consistently
Define what gets capitalized vs. expensed, and stick to it. Inconsistencies here can result in retroactive adjustments during diligence. - AR/AP aging schedules monitored monthly
Buyers look closely at how fast you collect cash and how long you take to pay vendors. Keep aging reports clean and address past-due items. - Inventory properly tracked and valued (if applicable)
Use consistent valuation methods and document write-offs for slow or obsolete inventory. Avoid overstated balance sheet assets. - Monthly financials include core KPIs
Include metrics like gross margin, customer acquisition cost (CAC), lifetime customer value (LTV), burn rate, and runway to demonstrate that your team is metrics-driven and investor-minded.
2. Tax
- Federal, state, and local tax filings are current and reconciled
Confirm all filings have been submitted on time and match your accounting records. Penalties or discrepancies can drag down confidence and deal momentum. - Nexus and apportionment reviewed annually
Especially critical for remote teams and ecommerce or SaaS businesses. Buyers will want to see you’re properly registered and compliant in every relevant jurisdiction. - R&D tax credit documentation is defensible
It’s not enough to claim the credit—you need clear time-tracking, eligible project lists, and third-party studies (if applicable) to withstand audit scrutiny. - Transfer pricing documentation (if applicable)
If you have international subsidiaries or intercompany arrangements, transfer pricing compliance is a must, even at early growth stages. - Sales and use tax compliance monitored actively
As your business grows across states or sells online, your tax obligations can change quickly. Buyers will look for proof that you’re properly registered, collecting the right amounts, and filing on time. Missed compliance here can lead to costly assessments or delayed deals. - Tax reserves appropriately estimated
If you’ve taken aggressive or uncertain positions on your tax returns, set aside a reasonable reserve to reflect potential liabilities. This signals transparency and reduces buyer concern during diligence. - Net Operating Losses (NOLs) and credits tracked and documented
These are valuable assets to a buyer. Maintain schedules with clear carryforward periods and filing support. - State-by-state income allocation is accurate
Ensure your state tax strategy holds up under scrutiny. Misallocation can lead to costly assessments post-transaction.
3. Payroll & HR
- Correct worker classification (W-2 vs. 1099) with supporting documentation
A single misclassified contractor can trigger penalties and retroactive tax liabilities. Maintain written agreements and documentation of classification decisions. - Registered for payroll taxes in every employee’s state
State compliance is essential—not just for taxes, but for unemployment insurance and workers’ comp. Remote team? Check every location. - All required payroll tax returns filed and reconciled
Late or missed filings are red flags. Reconcile Form 941s, state payroll returns, and W-2s to your general ledger. - Benefits and PTO accruals tracked and recorded accurately
Buyers want to know what they’re inheriting. Make sure vacation and sick time accruals are reflected as liabilities on your balance sheet. - Equity compensation fully reconciled and up to date
Cap table should match equity grant records and accounting entries. Stock option expense should be calculated and recorded under ASC 718. - HR files and offer letters centralized and accessible
Every employee should have a complete file with offer letters, NDAs, I-9s, and any equity agreements. Sloppy documentation introduces risk and undermines perceived professionalism. - Employee stock purchase plans, bonuses, and commissions properly accrued and documented
Clearly account for all forms of variable compensation. Buyers don’t like surprises, especially retroactive or undocumented obligations. - Historical headcount and payroll data easily retrievable
Keep clear records of prior periods for headcount, salary, and benefits. These help buyers model workforce efficiency and cost trends.
4. Supporting Documents & Systems
- Data room-ready folder structure established
Organize your financial and operational documents now, not when a buyer asks. Use consistent naming and folder systems for easy navigation. - Accounting or ERP system is scalable, auditable, and secure
Manual processes and weak controls raise red flags. Investors want to see robust systems with role-based access and audit trails. - Historical backups and monthly financial snapshots are accessible
You should be able to recreate financials from prior periods if asked. This is especially important during Quality of Earnings (QoE) or forensic reviews. - Board and investor approvals documented for key decisions
Keep signed resolutions for major financial actions including equity grants, debt, acquisitions, and accounting policy changes.
Ready or Not: The Strategic Advantage of Clean Books
You might not be planning to sell your business this year. Maybe not even this decade. But here’s the truth: the companies that command the highest valuations aren’t scrambling to clean up their books at the eleventh hour. They’re already in shape.
Think of your financials like your physical fitness. You don’t wait until the week before a marathon to start training. You build strength, stamina, and flexibility over time so that when race day comes, you’re ready to perform.
The same applies to your business. Investors, bankers, and acquirers are wary of financials that look out of breath. When your books are confusing, incomplete, or clearly cobbled together last minute, it creates doubt, and doubt drags down valuation. But when your financials are clean, consistent, and audit-ready, they tell a different story: this is a disciplined business. This is a well-run machine. This is a company worth top dollar.
Thinking About a Future Sale? Or Just Want to Be Ready for Anything?
Burkland’s M&A support team helps businesses like yours strengthen valuation, avoid diligence delays, and stay strategically positioned—whether a transaction is six months or six years away. Our sell-side support services include:
- Pre-transaction financial audits
- Quality of earnings (QoE) prep
- Tax exposure reviews
- Payroll and compliance cleanups
- Due diligence support from start to finish
Don’t wait until a deal’s on the table to get your financials in shape. Set your business up for maximum valuation now. Contact us to connect with our M&A experts.