Financial Clean-Up for M&A
Turning Messy Books Into Buyer-Ready Confidence
When a business owner decides to sell, one of the most overlooked—but absolutely critical—steps is getting the financials in order. In the world of mergers and acquisitions (M&A), messy books don’t just delay a deal—they kill it. Financial Clean-Up for M&A can drive your business multiple higher, resulting in larger payouts.
At Westport Financial, we specialize in financial clean-up services designed specifically for businesses preparing to go to market. Whether you’re a business owner, broker, or M&A advisor, our team helps transform unclear, inconsistent, or non-compliant books into clean, defensible financials that drive valuation and close deals faster.
What Is Financial Clean-Up?
Financial clean-up is the process of reviewing, correcting, and restating your company’s financial records to reflect the true and accurate performance of the business. It often involves:
Rebuilding historical records
Reconciling accounts
Fixing incorrect categorization
Normalizing expenses and earnings
Removing personal or one-off expenses from operating results
Aligning with Generally Accepted Accounting Principles (GAAP)
The result? Clear, accurate financials that tell a consistent story—one that builds buyer trust and reduces the risk of re-trades or broken deals.
What Is M&A Accounting?
M&A accounting refers to the specialized financial practices used during the acquisition or sale of a business. This includes preparing the financials to comply with accounting standards, support valuation, and survive the scrutiny of due diligence. It ensures that earnings are normalized, liabilities are clearly stated, and all key financial elements are aligned with deal structures, purchase price allocations, and post-closing adjustments.
Key functions of M&A accounting include:
Preparation of seller financials to GAAP standards
Clear owner add-back schedules and EBITDA normalization
Working capital analysis and target setting
Support for QOE (Quality of Earnings) reviews
Clean transition for post-close integration
Without proper M&A accounting, even strong businesses may be undervalued or encounter major deal delays.
Why Financial Clean-Up Matters in M&A
Most small to mid-sized business owners haven’t needed investor-grade financials—until they’re selling. Suddenly, every number is under a microscope. Inaccurate or disorganized records:
Undermine buyer confidence
Trigger lengthy due diligence delays
Increase legal and financial risk
Lower the final valuation
A structured financial clean-up avoids these pitfalls by ensuring the business can clearly present its earnings, normalize owner adjustments, and comply with relevant accounting standards like GAAP, ASC 606, or ASC 842.
How to Maximize Your Company’s Value with GAAP-Compliant Financials
GAAP-compliant financials are one of the most powerful tools a seller can use to justify a higher valuation and reduce buyer uncertainty. Here’s how they boost value:
✅ Transparency & Trust
Buyers know what they’re getting. GAAP provides standardized rules that reduce ambiguity and increase reliability.
✅ Stronger Earnings Adjustments
When you use GAAP, owner add-backs and adjustments are easier to validate—leading to higher adjusted EBITDA.
✅ Smoother Financing Process
Lenders are more likely to approve acquisition financing if your records are GAAP-compliant and professionally prepared.
✅ Faster Due Diligence
A well-organized data room with GAAP financials accelerates due diligence and reduces buyer objections.
✅ Supports Strategic Buyers
Institutional and private equity buyers often require GAAP-level financials. If your business isn’t prepared, you’re immediately at a disadvantage.
What Financial Clean-Up Entails
Our M&A-focused financial clean-up services include:
✅ Historical Reconstruction
We review and rebuild past records to ensure consistency and accuracy over time—essential for any buyer or lender analysis.
✅ Account Reconciliation
Bank accounts, credit cards, loans, and AR/AP are reconciled so that nothing is missing and every number ties out.
✅ Earnings Normalization & Add-Back Clarity
We separate owner perks and one-time expenses from core operations to showcase true profitability.
✅ Presentation Refinement
We create clean, professional financial packages that clearly communicate your value to buyers, investors, and lenders.
✅ GAAP Compliance & Revenue Recognition
We align your books with key accounting principles so your numbers aren’t just accurate—they’re defensible.
Common Issues to Fix During Financial Clean-Up
During M&A preparation, certain financial issues appear repeatedly in small to mid-sized business books. Addressing them is essential for buyer confidence and defensible valuations:
Inventory Accounting – Inventory that’s not properly tracked, valued, or expensed can distort COGS and profitability.
Cost of Goods Sold (COGS) & Gross Profit – Inaccurate allocation of direct costs can create misleading margins.
Accrual Accounting – Many small businesses operate on cash-basis; converting to accrual ensures financials reflect true economic activity.
Lease Accounting – Compliance with ASC 842 for capital and operating leases is often missed but required for accurate liabilities and expense presentation.
Revenue Recognition – Revenue must be properly aligned with delivery and performance obligations (ASC 606).
Owner’s Draws & Earnings – Mixing personal expenses with business activity inflates expenses and obscures actual earnings power.
Large One-Time Expenses – Unadjusted legal bills, equipment purchases, or one-off events can distort EBITDA if not normalized or amortized appropriately.
Fixing these issues in advance avoids surprises during diligence—and strengthens your negotiating position. With our detailed Financial Clean-up for M&A, we work to understand your business and ensure the financial tell the true story of your operations and enterprise value.
Deal Team Support: Behind the Scenes or In the Room
Westport Financial can seamlessly integrate into your M&A process, whether you need us behind the scenes or at the table. We collaborate with:
Business Brokers
CPAs and Tax Advisors
M&A Attorneys
Lenders and Due Diligence Teams
We don’t replace your professionals—we enhance the team with financial clarity and speed.
Proven Experience Across Industries
From asset-heavy operations to service-based businesses, we’ve supported dozens of successful transactions across the country. Our role is simple: reduce friction, close deals faster, and maximize value.
Whether you’re working with private equity, strategic buyers, or individual investors, the quality of your financials often sets the tone for the entire deal.
Our 3-Step M&A Clean-Up Process
We follow a proven methodology that accelerates deal timelines, eliminates confusion, and builds buyer confidence. Here’s how we help sellers prepare for a successful exit:
1. Discovery & Evaluation
We begin with a free financial evaluation to assess current gaps and estimate the level of clean-up required.
2. Rebuild & Normalize
Our team dives in—rebuilding, reconciling, and reformatting records to ensure buyer-readiness.
3. Support the Sale Process
We remain available throughout diligence to clarify numbers, support lender and buyer questions, and adapt as needed.
Letter of Intent vs. Letter of Interest
Understanding the difference between a Letter of Intent (LOI) and a Letter of Interest is crucial in the early stages of any deal.
A Letter of Interest is a non-binding expression of a buyer’s interest to purchase the business. It’s often used to begin preliminary discussions and may outline general deal terms without legal commitment.
A Letter of Intent (LOI) is a more formal, semi-binding document that outlines key terms of a deal—including price, structure, timeline, and due diligence requirements. Once signed, the LOI usually initiates exclusivity and signals serious buyer intent.
Sellers should carefully review and understand the implications of both documents before proceeding.
Why Westport Financial?
With over 50 years of combined finance and accounting experience, our team understands what buyers want to see—and what red flags to avoid. Our approach is fast, professional, and tailored to each deal.
Most importantly, we don’t just clean up your books—we turn them into a strategic asset that helps you exit with confidence and peace of mind. Our Financial Clean-up for M&A helps drive business valuation supported by strong accounting practices.
Learn more about Westport Financial M&A Services.
Common Terms & Definitions in M&A Accounting
EBITDA – Earnings before interest, taxes, depreciation, and amortization. Often adjusted to reflect the true operating performance of the business.
Add-Backs – Expenses that are not expected to recur post-sale (e.g., owner’s salary, personal travel, one-time legal fees). These are used to increase adjusted EBITDA.
Normalization – Adjusting financials to reflect the ongoing, recurring performance of a business, excluding irregular items or non-business activity.
QOE (Quality of Earnings) – A third-party report that validates the company’s financial performance and normalized EBITDA, often required by buyers and lenders.
Working Capital – The difference between current assets and current liabilities. A target is typically negotiated to ensure the business can operate post-close without additional funding.
Net Working Capital – A more specific calculation of working capital used in deals to determine whether there are sufficient short-term assets to cover short-term liabilities. Often subject to a “peg” for post-close adjustments.
SDE (Seller’s Discretionary Earnings) – A measure of cash flow available to the owner. Used in small business valuations and includes EBITDA plus owner compensation and discretionary expenses.
GAAP – Generally Accepted Accounting Principles. The standard framework of guidelines for financial accounting used in the U.S.
Due Diligence – The process where a buyer investigates the seller’s financial, legal, and operational records to verify accuracy and assess risk before finalizing a deal.
Valuation – The estimated worth of a business, often determined by applying a multiple to adjusted EBITDA or SDE, based on industry, risk, and performance.
Underwriting – The process by which lenders or investors assess the risk and financial condition of the business to approve financing or proceed with an investment.
Capital Stack – The structure of financing sources used in a transaction, typically including senior debt, mezzanine debt, and equity. Impacts returns and risk allocation for each party.
Purchase Price Allocation (PPA) – The method of assigning value to assets and liabilities after a transaction closes, which can impact tax and financial reporting.
Letter of Interest – A non-binding document indicating interest in a transaction. Often used in the exploratory phase to outline potential deal terms.
Letter of Intent (LOI) – A more formal document that outlines the major terms of a proposed transaction. Typically includes price, structure, timelines, and exclusivity.
Ready to Prepare for a Successful Exit?
Contact us to schedule a free financial evaluation and discover what it will take to create buyer-ready financials for your upcoming sale.