A buyer will look at several years of your numbers, but the most recent twelve months carry the most weight. They are what a private equity group builds its model on, what a lender underwrites, and what a competitor compares against its own results. That makes the final year before a sale the one owners can least afford to get wrong, and it is also the year their attention is most likely to drift. These are the five mistakes that show up most often.
1. Letting the business coast
Once an owner decides to sell, the mind moves to the exit. Sales calls get skipped, a big bid goes unchased, a hire gets put off until the new owner can decide. Two soft quarters at the end of a strong run do not read to a buyer as a pause. They read as a trend, and the buyer will ask what you know that they do not. A competitor will compare your numbers to its own market and notice the gap. A private equity group will lower its forecast and its price with it. Run the business through the year as if you were keeping it.
2. Cutting the wrong costs to dress up earnings
Some owners try to push the final year's earnings up by deferring maintenance, skipping equipment replacement, or letting a salesperson's position go unfilled. On paper the earnings rise. In diligence, the buyer finds the deferred work and subtracts it, often at a higher cost than the savings. A competitor knows what your equipment costs to keep running. A private equity group's accountants will compare capital spending to depreciation and to prior years. An individual buyer's lender may send someone to walk the floor. Earnings built by starving the business do not survive that review, and they make the buyer doubt the numbers that are real.
3. Keeping every key relationship in your own hands
In many companies at this size, the owner is still the person the largest customers call, the person who sets terms with the main suppliers, and the person who prices the big jobs. Buyers of every type discount that. A private equity group needs a management team it can back. An individual or family buyer needs to know the customers will stay when you leave. Even a competitor worries about which accounts walk out the door with you. The final year is the time to put a capable manager in front of those relationships, so a buyer can see them working without you.
4. Keeping the books for the tax return, not for a buyer
Most owners have spent years keeping taxable income low, and that is sensible while you own the business. In the year before a sale, the goal changes. A buyer pays a multiple of earnings, so every personal expense run through the company has to be found, explained and accepted as an add-back before it counts. Inconsistent inventory counts, cash-basis books, and a year-end that gets closed months late all slow a deal down. Owners selling to private equity should expect a quality of earnings review; reviewed financial statements from an outside CPA make that review shorter and easier to pass.
5. Signing commitments a buyer would want a say in
A ten-year lease extension, a large equipment purchase on new debt, a new location, a major customer contract at thin margins: each may be the right call for the business, but each is a commitment the buyer inherits. A competitor may already have the space or the capacity. A private equity group may have a different plan for growth. An individual buyer may simply not want the obligation. If a decision binds the company for years, consider whether it can wait, or be structured so a new owner can live with it.
The takeaway
Buyers price the most recent year more closely than any other, and they read it for signs of what you know about the business. Keep growing it, keep maintaining it, hand off the key relationships, get the books in shape for a buyer, and hold off on long commitments where you can. The final year should confirm the story the earlier years tell.
