Ensure you have a minimum of 3 years of consistent financial reporting
A common mistake that privately held businesses make is they periodically make changes to their financial statements without giving thought as to what the change might mean when comparing financials to prior periods. The problem with this is when a potential acquirer comes in to do their due diligence, they (and you) will find it frustrating and time consuming to compare prior years given the inconsistencies that have occurred.
These inconsistencies might be in areas such as changing how you calculate your product or service gross margin, changes to your chart of accounts and where you report various expense items, what investments you capitalize and changes to your revenue recognition or inventory management policies. Changing any of these at the time may make sense but think about what it will mean to prior period comparisons, especially for the prior 3 years. What seems like a simple change may in fact lead to confusion and stress when you present your company to an acquirer.
Talk with your accounting partner (whether on staff or external) and discuss the year over year consistency in your financial reporting. If you need to make changes, try to make them backward compatible for consistency of reporting sake so that you have a minimum of 3 years consistent reporting of your numbers. This basic step can help you and your acquirer eliminate unnecessary stress and time delays during due diligence and reduce the likelihood that they may try to lower their initial valuation and deal structure of their offer based on a degree of risk they are seeing in your financial reporting.
