How to Prep Your Books and Ops for an Acquisition

Acquisitions are financial due diligence marathons disguised as business courtships. The pitch deck might get you in the room, but it is your financial statements and operational discipline that close the deal. Buyers do not gamble on messy numbers. They pay up for clarity, consistency, and control.

If you are serious about being acquired, whether by a strategic buyer or private equity, you need to prepare your books and operations like they will be audited tomorrow. Below is what that actually means in practice.

1. Ensure GAAP Compliance and Consistency

Most buyers will require GAAP compliant financial statements. If you are running on tax-basis or a hybrid system, expect pushback. Buyers will re-cut your numbers anyway, and you do not want them controlling the narrative.

Key steps:

• Accrual basis conversion: If you are still cash basis, convert. A buyer needs to see revenues and expenses in the correct periods.

• Revenue recognition: Apply ASC 606 properly. For SaaS, that means deferring subscription revenue until services are delivered. For manufacturing, that means accounting for work in progress and percentage of completion where relevant.

• Expense matching: Align direct costs with related revenues. Do not let COGS creep into operating expenses.

• Chart of accounts rationalization: Eliminate vague categories. Every line should roll up logically into GAAP standard groupings.

This is where external accounting support often proves essential. A clean GAAP conversion signals discipline and reduces buyer adjustments later.

2. Reconcile Historical Financials and Normalized EBITDA

Historical financials are the foundation of valuation. Buyers typically look at three to five years of statements. Any inconsistency in methodology or unexplained swings raises red flags.

Key steps:

• Balance sheet reconciliations: Every account including cash, AR, AP, accruals, and deferred revenue must tie to supporting schedules. Unreconciled balances will get adjusted, usually against you.

• Normalized EBITDA adjustments: Identify and document one time, non recurring, or owner related expenses. Buyers expect add backs but only if they are well supported. Examples include litigation costs, relocation expenses, or excess owner compensation.

• Working capital analysis: Buyers often include a working capital target in the purchase agreement. You need a defensible baseline built from historical averages and seasonality, not just last month’s balance.

If you have not had an audit, consider at least a review level engagement. Independent assurance builds credibility.

3. Build Robust Forecasts and Sensitivity Models

A buyer does not just acquire your past; they acquire your future. Your forecast is your story about growth, margins, and scalability. Weak forecasts undermine valuation.

Key steps:

• Bottom up forecasting: Build from unit economics such as customers, pricing, churn, and cost per unit rather than top down percentage growth assumptions.

• Linkage to historicals: Forecast drivers should tie back to trends in the historical data. If margins suddenly jump 10 points in your model, be prepared to defend why.

• Scenario analysis: Build base, upside, and downside cases. Buyers will stress test assumptions anyway. Show that you have already done the work.

• Cash flow forecasting: Beyond the P&L, buyers want to see liquidity planning. A free cash flow model is table stakes.

Forecasting is where a seasoned CFO makes a difference. Precision in assumptions equals credibility in valuation.

4. Resolve Equity and Cap Table Complexity

Cap table issues derail deals more often than poor financials. Buyers want certainty about ownership. Any ambiguity here is a risk they may not take.

Key steps:

• Cap table reconciliation: Ensure stock issuances, options, warrants, and convertibles reconcile with filings and agreements.

• Option plan compliance: Verify board approvals, 409A valuations, and proper documentation.

• SAFE and note conversions: Address outstanding convertible instruments. Clarify conversion terms before diligence.

• Preferred stock waterfalls: Model liquidation preferences to show buyers how proceeds distribute.

Bring legal and finance together early. An unresolved equity claim can delay or even kill a transaction.

5. Formalize Operational Controls

Financials do not exist in a vacuum. Buyers also evaluate whether operations can scale. Weak controls suggest hidden risks.

Key steps:

• Order to cash process: Document billing, collections, and credit policies. Buyers want predictable revenue conversion.

• Procure to pay process: Implement clear vendor onboarding, approval hierarchies, and payment controls.

• Inventory management: For manufacturers and distributors, ensure perpetual inventory records reconcile to physical counts. Variances raise red flags.

• Segregation of duties: No single person should authorize, record, and reconcile the same transaction stream. Lack of segregation suggests fraud risk.

You do not need Fortune 500 bureaucracy, but you do need evidence that the machine can run without founder heroics.

6. Assemble the Data Room Before Diligence

Every buyer will require a data room. Companies that scramble at this stage lose credibility and deal momentum.

Key categories to prepare:

• Financial: Audited or reviewed statements, tax returns, trial balances, bank reconciliations.

• Legal: Articles, bylaws, shareholder agreements, contracts, intellectual property filings.

• HR: Employee census, compensation structures, benefits plans, employment agreements.

• Operational: Customer contracts, vendor agreements, leases, licensing, compliance records.

Structure matters. A well organized data room reduces diligence fatigue and shortens the path to closing.

7. Secure Experienced Transaction Support

Here is the blunt truth: deal prep is a full time job. Most management teams cannot run the business and manage diligence without strain. Buyers know this. If you try to do everything yourself, mistakes creep in and leverage shifts away from you.

The solution is experienced support, whether it is a fractional CFO, a transaction accounting advisor, or an M&A consultant. The role is not about buzzwords. It is about:

• Standardizing financial reporting to buyer expectations.

• Anticipating diligence questions before they are asked.

• Managing working capital and EBITDA adjustments to protect value.

• Keeping deal momentum while management stays focused on operations.

Think of it as fielding your own diligence team. The buyer has one, you need one too.

Takeaway for CFOs and Founders

Acquisition prep is not about window dressing. It is about building financial statements and operations that withstand forensic level scrutiny. GAAP compliance, reconciled balances, normalized EBITDA, defensible forecasts, clean cap tables, documented processes, and a ready data room are what buyers pay for.

If you want maximum valuation and minimum disruption, start early. Treat acquisition readiness as part of running a professional business, not as a last minute scramble.

Because in M&A, you do not rise to the occasion, you fall to the level of your preparation.

Book a strategy call with Ursa. We’ll help you get your financials tight, your ops prepped, and your story investor-ready—whether you're selling in six months or six years.