CARES Works · The Debrief · Clean Books Series · 1 of 3
What the Buyer's CPA Is Actually Looking For in Your Books
You think you're selling a business. The buyer's accountant thinks she's auditing a story. Here's the story she's reading.
The letter of intent is signed. Everyone shakes hands like it's over. Then an email arrives from someone you've never met, with a title like "Transaction Advisory," asking for three years of financials, the general ledger detail, bank statements, and a reconciliation of your P&L to your tax returns. By Friday.
That person is not your enemy. But she is not on your side either. She's been hired to find the difference between the business you described and the business that exists, and every dollar of difference comes out of your price or out of the deal. So it helps to know exactly what she's hunting for, because most of it is fixable before she ever opens the file.
1. Do the books tie to the tax returns?
This is the first thing she checks and the one that sinks the most deals. Your QuickBooks says you made $412,000 in 2024. Your tax return says $388,000. Nobody's lying. The bookkeeper closed the year in January, the CPA made adjustments in March, and nobody ever pushed those adjustments back into the books. Now there are two versions of the truth, and the buyer's CPA gets to pick which one she believes. She will pick the lower one. Every time.
2. Are the bank accounts actually reconciled?
Not "the bank feed is connected." Reconciled. Every month, every account, with a reconciliation report that shows a zero difference. She'll ask for the reports. If you can't produce them, she assumes the balance sheet is fiction, and she's usually right. An unreconciled balance sheet means the cash figure is a guess, the loan balances are a guess, and the equity line is the plug that makes the guesses add up.
3. What's living in Undeposited Funds?
Open that account right now. If there's a balance older than a couple of weeks, you have revenue that was recorded, then recorded again when the deposit hit, and now your sales are overstated by the amount sitting in there. The buyer's CPA knows this account by name. It's the first drawer she opens.
4. Is the owner in the books, or hiding in them?
Every closely held business has owner spending mixed into operations. The truck that's mostly personal. The family phone plan. The "consulting fee" to a relative. She doesn't care that it's there; she cares whether it's labeled. Clearly labeled owner expenses become "add-backs" that increase your valuation, because the buyer won't have to pay them. Unlabeled owner expenses just make your margins look worse than they are, and you eat the difference. Labeling is free money.
5. Do receivables and payables reflect reality?
She'll pull the aging reports. If you have $60,000 of receivables and $25,000 of it is from 2022, she knows that money is gone, and she'll adjust it out. Same with old bills that were paid but never marked paid. Ancient AR and AP tell her nobody's been minding the store, and she'll start looking harder at everything else.
6. Does the revenue have a pulse?
She's looking for pattern. Seasonal businesses should look seasonal. A big lumpy deposit in December with no invoice behind it looks like somebody moving money to hit a number. She'll trace it. If it's a real customer prepayment, fine. If it's a transfer from your other company, that's a conversation you'd rather have before she finds it than after.
7. Where's the debt?
Loans, lines of credit, the equipment lease, the SBA note from 2021, the credit card that's been carrying a balance. All of it should be on the balance sheet at the correct current balance, tied to a statement. Debt that surfaces during diligence is the single fastest way to lose a buyer's trust, because it makes them wonder what else is out there.
8. Can she follow the trail without you?
This is the quiet one. A clean file is one a stranger can read. Descriptive account names. Memos on the weird entries. No account called "Ask My Accountant" with $30,000 in it. The moment she has to email you to understand a transaction, she's billing the buyer for the hour, and the buyer is quietly discounting you for the friction.
What this adds up to
Notice that nothing on this list is about whether your business is good. It's about whether your records let someone else see that it's good. Owners lose six figures at closing not because the business was weak, but because the books made it look uncertain, and uncertainty gets priced.
| What she finds | What it costs you |
|---|---|
| Books don't tie to returns | She uses the lower number. Valuation drops with it. |
| Unreconciled accounts | Balance sheet treated as unreliable. Working-capital adjustment goes against you. |
| Stale Undeposited Funds | Revenue restated downward. |
| Unlabeled owner expenses | Add-backs you never got credit for. |
| Surprise debt | Trust gone. Sometimes the deal with it. |
The good news is that every item on this list can be fixed in days, not months, if someone who knows where to look does the fixing. The bad news is that the buyer's CPA is faster than you think, and the clock started when you signed the LOI.
Clean Books Series · 1. The buyer's CPA · 2. P&L vs. tax return · 3. The 7 lender checks · All free tools
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