What’s Killing Your Exit Valuation? The 3 Most Common Financial Fixes We Make Before You Sell

Most business owners assume that when it’s time to sell, the numbers will speak for themselves. But in lower middle market and main street deals, it’s not just what your financials say—it’s how cleanly and credibly you say it.

At High Point Advisory Group, we’ve seen countless sellers leave money on the table simply because their financials weren’t packaged in a way buyers and lenders could trust. And we would know—we support a high volume of buy-side diligence projects, so we’re trained to spot every crack, inconsistency, and risk buyers will use to chip away at your valuation.

This post breaks down the three most common financial issues we uncover when helping sellers prepare for exit. These problems don’t just make diligence harder—they actively reduce your enterprise value. The good news? If you catch them early, they’re fixable.

Why “Valuation” Isn’t Just About EBITDA

Most brokers and sellers talk in terms of SDE or EBITDA multiples. And yes, those are foundational metrics. But here’s what too many people miss: the quality of your earnings drives the strength of your multiple.

A business with $1M in clean, well-documented EBITDA may sell for 5–6x. But a business with the same $1M in EBITDA, masked by messy books, missing documentation, and unclear adjustments? It might sell for 3–4x—or not close at all.

Buyers don’t pay top dollar for potential. They pay for confidence. If your financials raise questions, delay responses, or fail to tie back to reality, they’ll assume the worst and reprice accordingly.

Fix #1: Rebuilding SDE from a Messy or Misleading P&L

We regularly see sellers present financials that show the wrong picture—not because they’re trying to deceive anyone, but because their books simply weren’t maintained with an exit in mind.

This typically shows up in three ways:

1. Owner Discretionary Expenses Are Everywhere

Many business owners legitimately run personal or hybrid expenses through the business: vehicle costs, travel, meals, family payroll, even home utilities. That’s fine—until it’s time to sell.

The problem? Buyers don’t take your word for what’s an add-back. They want proof. If your books don’t clearly document these items, expect pushback.

What buyers flag:

• Unexplained line items labeled “miscellaneous” or “other”
• High meals/entertainment expenses with no detail
• Owner salaries that don’t reflect market rates or include distributions

What we do:
We work backwards through 1–3 years of financials, creating an add-back schedule that can be justified and verified. We highlight these in your seller package so you’re not negotiating on defense.

2. Revenue Recognition Is Inconsistent

If you record revenue when cash hits your account—regardless of when work is performed—you’re on the cash basis. Many small businesses operate this way, but it causes problems when:

• You take large deposits months in advance
• You complete work before full payment is received
• You mix product sales with service revenue but account for them differently

What buyers flag:

• Mismatches between revenue and COGS
• Spikes in revenue that don't align with operational activity
• Deferred revenue liabilities that aren’t recorded

What we do:
We adjust your income statements to reflect revenue earned—not just received. We may recommend shifting to accrual accounting or, at minimum, clarifying recognition policies during the sale process.

3. P&Ls Don’t Match Tax Returns or Bank Statements

This is a huge trust breaker. If your P&Ls say you made $800K in SDE but your tax returns only show $500K, you’ll need a bulletproof explanation—or the deal will stall.

Buyers use third-party advisors (like us) to verify your numbers through Proof of Cash—a reconciliation of your bank activity against reported income.

What we do:
We run a Proof of Cash ourselves before a buyer ever sees your business. We proactively find discrepancies, resolve missing entries, and make sure that what’s in the P&L matches what’s actually in the bank.

Fix #2: Cleaning Up the Working Capital Disaster

Most sellers don’t realize that working capital can be a silent deal killer. Here’s how it works:

Buyers assume they’re buying a business that can continue operating without needing an immediate cash injection. That means there needs to be enough receivables, inventory, and payables on Day 1 to support operations.

But if your working capital is mismanaged—or misrepresented—buyers will:

• Reduce your purchase price
• Ask you to leave more money in the business at close
• Introduce escrows or holdbacks

Common working capital issues we resolve:

1. Uncollectible AR

Are there invoices that are 90+ days old and probably won’t be paid? If they’re still on the books, you’re overstating your assets and working capital.

2. Aged Inventory

If your inventory hasn’t turned in 12+ months, it may be obsolete. Buyers won’t value it at cost—and neither should you.

3. Vendor Payables or Credit Cards Off the Books

Some sellers delay recording liabilities until year-end or lump credit card charges into a catch-all account. This creates a false impression of cash flow.

What we do:
We normalize working capital by:

• Removing dead AR and slow-turning inventory
• Adjusting for timing differences in payables
• Creating a clean, defensible working capital target

This protects your valuation—and helps avoid painful post-close reconciliations.

Fix #3: Untangling Owner-Dependency and Payroll Confusion

One of the biggest drivers of perceived risk is when the business is too dependent on the owner—or when the team structure is unclear. Buyers don’t just want a set of financials. They want a business that runs.

Here’s where we see valuation take a hit:

1. The Owner Is the Business

If you’re the head of sales, the production lead, the bookkeeper, and the operations manager—all in one—buyers will wonder what’s left when you’re gone.

Even if you plan to stay on for a transition period, a buyer doesn’t want to be dependent on you long-term. The more institutionalized your team and systems are, the more valuable the business becomes.

2. Payroll Is a Black Box (And We Get Why)

We understand why many business owners have structured payroll the way they have—especially in founder-led or family-run companies. Maybe you’ve used 1099 contractors instead of W-2 employees to stay flexible. Maybe your spouse or kids are on payroll for tax efficiency. Maybe you’ve paid yourself primarily through draws or distributions. That’s all perfectly normal in the day-to-day reality of running a small business.

But when it’s time to sell, those same practices can muddy the waters.

Buyers will want to see a clear and consistent payroll structure that reflects what it would cost them to operate the business without you. If compensation is split between multiple accounts, off-books, or includes non-operational family members, it becomes hard to model—and that introduces risk.

What buyers worry about:

• Who actually works in the business (and who’s just on the books)?
• Are these contractors really full-time employees in disguise?
• What will it cost us to replace the owner or key roles post-close?

What we do:
We help untangle the reality from the reporting. That means:

• Normalizing payroll to reflect true operating costs
• Separating family, owner, or non-essential compensation
• Clarifying roles and responsibilities on an org chart
• Recommending where W-2 classification makes more sense

You don’t need to change your structure overnight—but you do need to help buyers see through it. That’s where we come in. We make your payroll understandable, justifiable, and most importantly—not a reason to lower your valuation.

Summary: These Fixes Pay for Themselves

Each of these financial issues—messy P&Ls, working capital traps, and owner-dependence—can reduce enterprise value by hundreds of thousands of dollars. They also increase the likelihood of:

• Deal delays
• Renegotiation after the LOI
• Requests for seller financing or earnouts
• More aggressive lender scrutiny

The fix? Start early and work with an advisor who knows how buyers think—because we are the team buyers hire when it’s their money on the line.

Let’s Talk If You’re Thinking About Selling

If you’re 6–24 months out from a potential sale, now is the time to get your financials ready for prime time. At High Point, we support sellers with:

• Sell-side financial reviews
• Add-back validation and SDE modeling
• Working capital analysis
• Proof of Cash
• Pre-listing cleanup and exit planning

Want to see how we’ve helped other sellers protect their valuation? Check out:

• Exit Planning Starts 12–24 Months Before You Sell
• Deal-Saving Diligence: Why You Need a Partner Who Verifies—Not Vaporizes—Deals

We’ll help you think like a buyer—before a buyer tells you what your business is worth.

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