Owners spend a lot of time on the profit and loss statement before a sale, and they should. That is where the earnings come from. The balance sheet gets far less attention, often because nobody but the accountant has looked at it closely in years. A buyer will look. So will the buyer's lender. What they find there, from a truck a family member drives to a loan the company made to the owner a decade ago, can slow a deal or move the price. Almost all of it is easy to fix if you start a year ahead.
1. Get the personal items out of the company
Over decades, a business collects things that are not really business assets. A boat or a second vehicle titled to the company. A life insurance policy with cash value. A family member's phone on the company plan. None of it is necessarily wrong, and some of it may have made sense for tax reasons at the time. But every item has to be sorted out before closing: is it included, excluded, or coming out to you? Decide now, talk with your accountant about the tax consequences of moving each one, and get it done before the period a buyer will review. An asset list a buyer has to question item by item reads like a business that was never fully separated from its owner.
2. Settle the loans between you and the company
Owner loans run in both directions. Some owners have put money into the business over the years and carry it as a loan the company owes them. Others have taken money out that the books record as a loan to the owner rather than a distribution. Either one raises questions in diligence, and the second can raise tax questions as well. Have your accountant reconcile the balances, document what each one is, and decide how it gets resolved at or before closing. An unexplained number on the balance sheet is exactly where a buyer's accountant stops, and every stop costs time.
3. Collect or write off the old receivables
Pull up your aging report. In most businesses there are invoices out past 90 or 120 days that everyone knows will never be paid, still sitting there as an asset. Depending on how the deal is structured, the receivables either stay with you or go to the buyer, and the old ones are a problem either way. If they stay with you, they are money you probably will not collect. If they go to the buyer, the buyer will not pay full value for them, and the argument over which ones count tends to come late, when nobody has patience left. Work the collectible ones now, write off the rest with your accountant, and tighten terms with the customers who are always slow. A clean aging report also tells a buyer something about how the business is run.
4. Make the equipment list match the floor
The fixed-asset schedule your accountant keeps for depreciation is often a poor picture of what the business actually owns. Equipment scrapped years ago is still listed. Equipment that is fully depreciated and runs every day shows up at nothing, or not at all. A buyer will walk the building with your list in hand, and the buyer's lender may send someone to do the same. Walk it yourself first. Build a list of what is there, what it does, roughly how old it is, whether you own it or lease it, and what shape it is in. That list becomes the backbone of the purchase agreement, and it is much better written by you than discovered by them.
5. Know every loan and lien before a buyer does
Lenders who finance equipment or extend a line of credit usually file a lien against the business assets, and those filings are public. The buyer's lender will search for them, and each one has to be paid off or released at closing so the buyer gets clear title. Owners are regularly surprised by what turns up: a lien from an equipment loan paid off years ago that was never released, or a line of credit secured by everything the business owns. Ask your attorney or banker to run a lien search, list every loan with its payoff amount, and get stale filings released now. Today it takes a few phone calls. In the last week before closing, it can push the date.
The takeaway
The balance sheet is where years of convenient shortcuts collect. Few of them sink a deal on their own, but each one is a question, and buyers price questions. Sit down with your accountant a year out, go line by line, and ask of every item whether you would be comfortable explaining it to a stranger who is about to write you a large check. Fix the ones where the answer is no.
