Why Financial Readiness Matters in M&A

An acquisition can accelerate growth, open new markets, or enable a founder's exit, but without financial preparedness, the process becomes more costly and time-consuming.

Financial operations that are acquisition-ready:

• Reduce legal and accounting costs during due diligence
• Increase valuation by presenting accurate and organized data
• Build buyer confidence by demonstrating internal controls and consistent processes
• Accelerate deal timelines, making your company more attractive

1. Clean Up and Standardize Financial Statements

If your accounting records require explanation or manual adjustment each month, now is the time to fix it. Buyers want to see consistent financials aligned with GAAP.

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Key actions include:

• Eliminate miscoded or uncategorized transactions
• Remove non-recurring or owner-specific expenses to normalize EBITDA
• Reconcile all balance sheet accounts and ensure they tie to supporting documentation
• Standardize reporting periods and revenue recognition policies

Consistency builds trust. Your financials should tell the same story, whether viewed internally or externally.

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2. Prepare a Three-Year View with Forecasts

Buyers and investors want to see where you've been and where you're going. A robust financial model that includes historical performance and future projections is essential.

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Include:

• Revenue trends segmented by product, customer, or geography
• Gross margin detail and cost of goods sold trends
• Operating expenses are broken out by department or function
• Forecasts showing how investment, product launches, or expansion will affect performance

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If you don't have forecasting capabilities in-house, work with a fractional CFO or financial modeling consultant to build one.

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3. Implement Strong Internal Controls

A company with unclear roles, approval processes, or inconsistent reconciliation practices signals risk to a buyer. Institutionalize your financial practices before entering the acquisition process.

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Implement:

• Segregation of duties across AP, AR, and payroll functions
• Monthly close procedures and checklists
• Secure access to financial systems with audit trails
• Vendor approval processes and contract documentation

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Standardization shows that your business isn't dependent on one person's knowledge, which is especially important if founders plan to exit post-acquisition.

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4. Organize and Document All Financial Systems

Your financial tech stack should be up-to-date and well-documented. If you're using a patchwork of spreadsheets, local accounting files, or outdated systems, it can delay or derail diligence.

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Make sure your:

• The accounting platform is cloud-based and accessible for review
• The chart of accounts is clear and logically organized
• Payroll and HR systems integrate cleanly with accounting
• Invoices, receipts, and contracts are stored and searchable

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Buyers expect system documentation and reporting capabilities that allow for transparent review.

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5. Address Any Tax Liabilities or Exposure

Unresolved tax issues—sales tax, nexus exposure, or payroll liabilities—can become a deal killer. Review your tax position proactively to avoid red flags during diligence.

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Steps to take:

• Review prior-year returns and ensure all tax filings are current
• Confirm sales tax compliance, especially across states or jurisdictions
• Prepare documentation for any R&D credits or tax incentives claimed
• Resolve outstanding notices or penalties

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Conduct a tax risk assessment with your CPA or tax advisor if necessary.

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6. Align Your Finance Function to Post-Acquisition Goals

If you're acquiring another company, the financial integration process starts before the ink dries. Your systems and team must be ready to absorb new reporting requirements, consolidate data, and manage cultural changes.

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Preparation includes:

• Assessing whether your current team and systems can support the combined entity
• Creating a timeline for integrating general ledgers, banking, and payroll
• Building internal dashboards to monitor integration success

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Proactive planning ensures smoother operations and protects your investment.

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Conclusion

Strategic acquisitions are opportunities to scale, exit, or reposition—but financial disorganization can cost time, reduce valuation, or kill the deal. Whether you're preparing for acquisition or looking to acquire, strengthening your finance function is a must.

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If you're looking for expert guidance to simplify your tax filing process, schedule a time with a Decimal expert at https://www.decimal.com/contact-us. We'll help you create a finance function that is ready for any transition.

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