Preparing your business for sale: the financial checklist

Scope note: this is general financial education for owners thinking ahead. When you are ready to sell, your business broker or M&A adviser runs the transaction — we prepare the audit-grade financial records, reconciliations and data room they ask for. Torch Corporate does not act in the sale of a business or transfer of a legal arrangement.

Most business owners decide to sell, then start preparing. The owners who get the best price — and the cleanest exit — start preparing 18 months before the decision is final. The financial work is half the engagement: clean books, normalised earnings, working capital benchmarks, and a vendor due-diligence pack ready to hand to the first qualified buyer.

This article works through the 18-month runway in three phases, the six questions every buyer asks, and the four EBITDA add-back patterns that show up in nearly every transaction.

Why 18 months? Because compounding works both ways

A buyer pays a multiple of normalised earnings. The multiple is influenced by quality of earnings (how clean and recurring the revenue is), customer concentration, owner dependency, and the visible trend. Most of these compound:

Cleaning up the books takes 6–12 months — old reconciliation issues need real time to work through.
Diversifying customer concentration (no single customer over 20% of revenue) takes 12+ months of intentional sales work.
Removing owner dependency (training a manager to run operations without you) is a year-long process.
Demonstrating an upward trend in normalised earnings needs at least 12 months of clean data.

A buyer's due-diligence team will look back 3 full years. Anything they find that wasn't presented to them — a related-party transaction, an undisclosed loan, a tax issue — costs you both price and trust. The work to clean it up before they look is real; the work to defend it after they look is brutal.

The 18-month runway, phase by phase

Months 18–12 — clean the books

The aim of this phase is to produce three years of audit-grade financial statements with no loose ends, no unreconciled accounts, and no director-loan account issues hanging over the transaction.

Reconcile every account (bank, credit cards, loans, clearing accounts) for the past 24 months. Open reconciliation items kill credibility.
Resolve any director-loan account balances. Pay down or document repayment plans. Division 7A loans must be on compliant terms (8.37% interest rate for 2025–26, documented agreement, minimum repayments paid).
Identify and document one-off, non-recurring expenses. These will be added back to EBITDA during normalisation — but only if you can clearly evidence why they're one-off.
Tighten or eliminate cash-only transactions. Anything that isn't through the bank is invisible to a buyer's diligence and creates an opening for them to discount your earnings.
Audit and re-classify expenses that shouldn't be in COGS, and vice versa. Inconsistent COGS allocation distorts gross margin trend lines — the number a buyer cares about most.
Sort out any outstanding ATO or state revenue debt. Payment plans need to be current; disputed assessments need a clear status.

This is also the right time to engage our bookkeeping service if your monthly close is not already audit-ready — see our five financial reports article for what monthly close should look like.

Months 12–6 — normalise the numbers

Normalisation is the process of restating reported earnings to reflect what the business would earn under a new owner. Three layers:

Owner-related add-backs. Above-market owner's salary, owner's private benefits run through the business (vehicle, phone, travel), discretionary spend that won't continue. These get added back to EBITDA — but you need evidence (payment records, contracts) to defend each one.
One-off / non-recurring items. Legal disputes, large one-off marketing spends, redundancy costs, abnormal bad debts. Same evidentiary standard.
Run-rate adjustments. If the business signed a major new contract in month 8 that ran for only 4 months of the year, you might present a run-rate-annualised revenue figure (with a footnote explaining the basis). Buyers vary in how much credit they give for this.

Other things to lock in during this phase:

Benchmark working capital (DSO, DPO, inventory days) against the industry. Buyers expect normal working capital to be left in the business; abnormal positions get a price adjustment. See our cash conversion cycle article for the model.
Document recurring revenue, customer concentration, contract terms. Recurring revenue (subscription, retainer, long-term contract) is worth more than transactional revenue at sale.
Lock in any compliance gaps (super, payroll tax, FBT, GST). Anything outstanding becomes a buyer's discount or an indemnity clause in the sale agreement.
Begin the financial data room: 3 years of statements, BAS lodgements, payroll records, contracts (customer, supplier, lease, employment), IP register, regulatory licences, insurance policies.

Months 6–0 — buyer-ready

By month 6 the financial work should be largely complete. The remaining time is for polishing, forecast modelling, and getting the operating side of the business ready for scrutiny.

Vendor due-diligence pack complete and reviewed by your adviser. This is the document buyers will request in the first 48 hours — handing them a tight, professional pack accelerates the process and signals quality.
Forecast model — 3 years forward, supported by reasonable assumptions and bottom-up logic. Buyers will rebuild your model to test it; the cleaner your assumptions, the less they have to question.
KPI dashboard demonstrating the business runs without the owner. Anything that depends on the owner's personal involvement gets discounted in valuation.
Information memorandum (IM) draft — usually written with the broker. The IM is a sales document, not a financial statement; the financial pack supports the claims.
Pre-sale tax planning. The structure you sell in changes the tax outcome dramatically — sole-trader sale of business assets vs company-share sale vs trust-asset sale. The small business CGT concessions (15-year exemption, retirement exemption, active asset 50% reduction, replacement asset rollover) are valuable but have specific eligibility conditions. Get advice before signing anything.

The four EBITDA add-back patterns that show up in every transaction

Buyers and brokers see the same add-back patterns repeatedly. Be aware of them — they're the categories that get scrutinised hardest.

Owner's above-market salary. If you pay yourself A$250K but a hired replacement would cost A$150K, the A$100K difference is a legitimate add-back. You need a defensible market-rate benchmark.
Owner's private vehicle and phone. Running these through the business is normal; adding them back at sale time is normal. The number itself is small but it flags “is this clean”.
Family member salaries. If a family member is on payroll but does no work, the salary is added back. If they do partial work, only the above-market portion is added back. Both cases create awkward conversations during diligence.
Discretionary marketing or R&D. One-off campaigns, sponsorship deals, R&D experiments that won't continue. Defensible but needs explicit documentation.

The six questions every buyer asks

What are your add-backs and why? Have the evidence ready before they ask.
What's the customer concentration? Top 5, top 10, top 20 customers as % of revenue. Anything above 20% concentration in a single customer creates risk discount.
What's working capital been over the past 24 months? Buyers want to leave the right amount of working capital in the business. Highly variable working capital is a red flag.
How dependent is the business on you, the owner? If the answer is “highly,” the valuation drops or the sale agreement requires you to stay on under earn-out terms.
What does the next 36 months look like, and why? Bottom-up forecast, with the major assumptions defensible. Top-down “we'll grow 10%” doesn't survive diligence.
What are the compliance risks I'm inheriting? Outstanding ATO disputes, payroll-tax under-payments, FBT issues, super shortfalls. Disclose proactively or face indemnity claw-backs later.

Justyna has coordinated due diligence with BDO, RSM, BSA Partnership and JTP Assurance — she knows what audit-grade and DD-grade documentation actually looks like, and the difference between the two. The discovery call is the right place to start the conversation if exit is on your 12–24 month horizon.

Common questions about pre-sale preparation

Should I incorporate before selling?

Selling shares in a company is often cleaner (and tax-effective) than selling business assets directly. Conversion to a company structure 18–24 months ahead of a sale is a common strategy — but it carries its own CGT/stamp-duty cost and needs to be modelled before commitment. Our entity structure comparison calculator is a starting point; the actual decision needs a chartered tax adviser.

What's the difference between asset sale and share sale?

Asset sale: the buyer purchases individual business assets (goodwill, equipment, customer list, IP) from the seller. Seller keeps the company shell. Generally higher complexity, may attract GST on going-concern issues, and the seller may have post-sale obligations on retained liabilities.

Share sale: the buyer purchases the company shares. The company itself (with all its assets, contracts, employees and liabilities) transfers to the buyer. Cleaner for the seller, often tax-advantaged (access to small business CGT concessions, capital gains discount), but the buyer assumes inherited risk. Buyers usually prefer asset sale; sellers usually prefer share sale. The middle ground is asset sale via a clean-shell company.

When should I tell my employees?

Not until exchange (signing of the contract subject to conditions, usually 4–6 weeks before completion). Telling earlier risks key staff leaving, customers hearing through them, and the sale process falling over. Tell on the right day, with the buyer's involvement planned, and with a retention story for key people.

Where to start

If selling is on your 12–24 month horizon, the financial preparation should already be in motion. The discovery call is the right place to walk through your current state, identify the gaps, and scope what we'd cover in the 18-month runway.

When the time comes to take the business to market, your business broker or M&A adviser runs the transaction. We prepare the financial documentation they ask for: audit-grade records, normalised earnings, working capital benchmarks, data room. The two roles are distinct and complementary.

References: ATO — Small business CGT concessions (15-year exemption, retirement exemption, 50% active asset reduction, replacement asset rollover), Division 7A benchmark interest rate (8.37% for 2025–26). The audit firms named in this article (BDO, RSM, BSA Partnership, JTP Assurance) are independent firms Torch Corporate has coordinated with on client diligence engagements — no relationship is implied beyond audit coordination.

This information is general in nature and does not constitute personal financial or tax advice. Please contact us to discuss your individual circumstances. Tax laws are subject to change; information on this page reflects legislation in effect as of May 2026.