Why “consistent or explainable” financials can add millions to your valuation
Imagine walking into a buyer’s conference room where your financial statements are spread across the table. The first question they ask isn’t about your revenue growth—it’s about why your costs jumped 15% last quarter while sales only grew 8%.
This moment can make or break your deal.
The Hidden Risk That Kills Valuations
When preparing to sell your business, buyers aren’t just buying your past performance—they’re buying confidence in future earnings. And nothing destroys confidence faster than financial inconsistency that can’t be explained.
Here’s what buyers really evaluate: financial predictability. Your revenue doesn’t need to be flat (buyers love growth!), but your costs and margins should track logically with your sales.
The Bottom Line: Unpredictable financials = perceived risk = lower offers
The Two Numbers That Tell Your Story
Smart buyers focus on percent-to-sales ratios as their truth detector:
1. Cost of Goods Sold (COGS)
- What buyers want to see: If sales rise 20%, COGS should rise proportionally
- Red flag: COGS ratios that swing more than 2-3% without explanation
- Why it matters: Stable COGS signals cost control and operational predictability
2. SG&A (Sales, General & Administrative) Expenses
- What buyers want to see: SG&A decreasing as a percent of sales as you grow
- Why it matters: This shows operating leverage—proof you’re scaling efficiently
Visual Success Story
When “Messy” Financials Actually Help Your Sale
Here’s the surprising truth: buyers expect some fluctuations. What they can’t tolerate is fluctuations without explanations.
Acceptable (and even attractive) variations when documented:
- Raw material cost spikes with supplier documentation
- One-time facility moves or legal costs
- Seasonal adjustments with clear patterns
- Growth investments with measurable returns
The key: Every anomaly needs a clear narrative backed by documentation.
Your CLEAN™ Advantage
This financial consistency directly supports three pillars of the CLEAN™ framework:
- 💰 Cash Flow: Predictable costs = stable cash flow projections
- 📈 Earnings: Margin consistency = credible earnings multiples
- 🎯 Next Steps: Improvement plans = higher buyer confidence
Your Pre-Sale Financial Audit Checklist
Transform your financials from question marks into selling points:
📊 Financial Deep Dive
[ ] Analyze 3-5 years of financials for patterns and outliers
[ ] Calculate percent-to-sales ratios for all major expense categories
[ ] Identify any ratios that vary more than 3% year-over-year
🧾 Documentation Arsenal
[ ] Create a “Financial Anomalies” file explaining every significant variation
[ ] Document one-time events (moves, legal costs, equipment purchases)
[ ] Gather supplier contracts explaining raw material cost changes
💡 Future-Focused Planning
[ ] Develop 12-month financial projections showing consistency
[ ] Create facility utilization models demonstrating efficiency
[ ] Document pricing strategies and cost control measures
🧠 Operational Readiness
[ ] Minimize owner dependency in financial processes
[ ] Ensure all financial roles and processes are documented
[ ] Prepare management team to explain financial metrics
The Million-Dollar Question
Before you list your business, ask yourself: Can I explain every significant financial variation in 60 seconds or less?
If the answer is no, don’t worry—you’re not alone, and you don’t have to figure this out by yourself. If the answer is yes, you’re already positioned to command premium valuations.
Remember: In the world of business sales, consistency builds confidence, and confidence builds value.
You Don’t Have to Navigate This Alone
Financial preparation for a business sale can feel overwhelming, but the right guidance can transform potential obstacles into value-building opportunities. Our team brings over 80 years of collective experience, along with an arsenal of seasoned professionals who specialize in preparing businesses for successful exits.
The Investment That Pays for Itself
While professional preparation isn’t free, the return on investment typically ranges from 3-5 times the cost—and often much more. The difference between a well-prepared sale and a rushed one can mean millions in additional value.
Whether you need help documenting financial anomalies, improving operational consistency, or developing compelling growth narratives, we’re here to help you maximize your business value.
Ready to optimize your financials for sale? The CLEAN™ framework provides the roadmap, and our experienced team provides the expertise to maximize your business valuation.
