How do I sell my business?

Selling a business typically involves several stages: preparing your financials, getting a professional business valuation, engaging a business broker or going direct to buyers, negotiating a letter of intent (LOI), completing buyer due diligence, and closing the transaction. The most important step — and the one most sellers skip — is financial preparation. Cleaning up your books, normalizing your earnings, and organizing supporting documentation before going to market helps you negotiate from a position of strength, avoid purchase price reductions, and close faster. Ideally, you should start preparing 12 to 36 months before a planned sale.

When should I start preparing my financials before selling my business?

Ideally, 12 to 36 months before a planned sale. Buyers typically value a business based on the most recent twelve-month period, but they review the prior two to three years to understand what is normal, identify trends, and assess the sustainability of earnings. Starting early gives you time to clean up historical bookkeeping issues, normalize your results, document add-backs, and build a track record of consistent, deal-ready financials.

What causes business sales to fall apart after a letter of intent (LOI) is signed?

The most common causes are financial issues discovered during buyer due diligence: EBITDA changing under review, undocumented or rejected add-backs, unclear owner compensation, inconsistent monthly financials, personal expenses mixed into business accounts, and poorly supported working capital. These issues erode buyer confidence, lead to purchase price reductions, extend timelines, and cause deal fatigue.

How long does it take to sell a small business?

From listing to closing, selling a small business typically takes 6 to 12 months. However, the total timeline is longer when you factor in preparation. Financial preparation alone should ideally begin 12 to 36 months before a sale. Once a buyer is identified and an LOI is signed, the due diligence period typically takes 45 to 60 days.

What is the difference between SDE and EBITDA?

SDE (Seller's Discretionary Earnings) adds back the owner's total compensation to the bottom line and is used to value smaller, owner-operated businesses — typically those with less than $1 million in annual earnings. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) does not add back owner compensation and is the standard for larger businesses where a buyer expects professional management to run operations.

What is a Quality of Earnings (QoE) report?

A Quality of Earnings report is an independent financial analysis conducted during buyer due diligence. It verifies whether a business's reported earnings are accurate, sustainable, and repeatable. The analysis examines revenue quality, EBITDA normalization adjustments, working capital requirements, and financial trends. Sellers who understand the QoE process before going to market can address potential issues proactively and avoid surprises that lead to price reductions or failed deals.

What are add-backs in a business valuation?

Add-backs are expenses that are added back to your earnings when calculating SDE or adjusted EBITDA because they are not expected to continue after the sale. Common add-backs include the owner's salary and benefits, one-time or non-recurring expenses, personal expenses run through the business, and above-market rent paid to a related party. Every add-back must be clearly identified, quantified, and supported with documentation.

What does deal-ready mean when preparing to sell a business?

Deal-ready means your financials are structured so buyers can easily understand how the business makes money, verify your earnings, and rely on the numbers without repeated revisions during due diligence. This goes beyond having clean books. Deal-ready financials mean your EBITDA or SDE holds up under buyer adjustments, your historical numbers tie consistently, owner expenses are clearly identified, and working capital can be explained and supported.

How do I clean up my QuickBooks before selling my business?

Start by reconciling all bank accounts, credit cards, and loan accounts through the current month. Review your chart of accounts and merge or remove redundant categories. Reclassify personal expenses that have been mixed with business expenses. Clear out stale accounts receivable and payable entries. Ensure revenue is categorized consistently across all periods. Flag one-time or unusual transactions that will need explanation during due diligence.

Is ongoing bookkeeping enough to prepare for selling my business?

Ongoing bookkeeping alone is usually not enough. Standard bookkeeping focuses on compliance — reconciling accounts, categorizing transactions, and producing financial statements for tax filing. Selling a business requires financials that can withstand buyer scrutiny, answer detailed follow-up questions, and remain consistent throughout due diligence. This requires normalizing EBITDA or SDE, documenting add-backs, ensuring historical consistency, and preparing for the types of questions a buyer's transaction advisors will ask.

What is exit planning for a business owner?

Exit planning is the process of preparing your business — financially, operationally, and strategically — for an eventual ownership transition, whether that's a sale to a third party, a management buyout, or passing the business to family. Good exit planning starts years before a sale, not months. It involves getting your financials deal-ready, reducing owner dependence, building transferable systems, understanding your business's true value, and aligning the timing with your personal and financial goals.

Why isn't my CPA enough when preparing to sell my business?

CPAs play an essential role in tax planning and compliance, but their scope typically doesn't include preparing your financials for buyer due diligence. Selling a business requires a different perspective — one that focuses on how a buyer's transaction advisors will read your financials, what adjustments they'll make to your EBITDA, and whether your numbers will hold up under a Quality of Earnings analysis. This requires transaction advisory experience.

What services does Genki Solutions provide?

Genki Solutions provides bookkeeping and financial readiness services for small and mid-sized business owners, with a focus on preparing deal-ready financials for business sales and capital raises. Services include historical bookkeeping cleanup and catch-up, ongoing monthly bookkeeping, EBITDA and SDE normalization, add-back identification and documentation, QuickBooks Online setup and cleanup, and financial due diligence preparation.

What makes Genki Solutions different from other bookkeeping firms?

Most bookkeeping firms focus on compliance — keeping your books clean enough to file taxes. Genki Solutions focuses on financial readiness — preparing your books to withstand buyer due diligence. Before starting Genki Solutions, founder Seiji Ueda worked in transaction advisory and quality of earnings analysis, reviewing financials from a buyer's perspective. That experience means we know exactly what buyer teams look for, where deals break down, and how to structure your financials to protect your valuation.

Where is Genki Solutions located?

Genki Solutions is based in Walnut, California, in the San Gabriel Valley area of Greater Los Angeles. We work with clients both locally in Southern California and remotely across the United States.

SDE vs EBITDA: Which Valuation Method Applies To Your Business?

Jan 23

Written By Seiji Ueda

When business owners start researching how their company might be valued in a sale, two acronyms come up immediately: SDE and EBITDA. Both are measures of earnings, both are used to calculate purchase prices, and both matter — but they apply to different types of businesses and different types of transactions.

Understanding which one applies to your business isn't just academic. It directly affects how much your company is worth, who your likely buyers are, and how you should prepare your financials before going to market.

What SDE Means

SDE stands for Seller's Discretionary Earnings. It represents the total financial benefit a single owner-operator takes from the business, including salary, benefits, personal expenses, and profit. SDE adds back the owner's total compensation to the bottom line because the buyer is essentially purchasing a job along with the business.

The formula is straightforward: net income, plus owner's salary and benefits, plus interest, depreciation, amortization, and one-time or non-recurring expenses. The result is the total cash flow available to a single working owner.

SDE is most commonly used for smaller businesses — typically those with less than $1 million in annual earnings — where the owner is actively involved in daily operations. These businesses are usually purchased by individual buyers who plan to step into the owner's role.

What EBITDA Means

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. Unlike SDE, EBITDA does not add back owner compensation. Instead, it assumes the business will be run by professional management, and a market-rate salary for that management is already accounted for as an expense.

EBITDA is the standard metric for larger businesses, typically those earning above $1 million, where strategic buyers, private equity firms, or other institutional acquirers are the likely purchasers. These buyers aren't buying a job — they're buying a cash-flowing asset.

Why It Matters for Valuation

The distinction matters because SDE and EBITDA produce different numbers, and they're multiplied by different ranges of multiples. A business valued at 3x SDE and the same business valued at 5x EBITDA could produce very different purchase prices — or surprisingly similar ones, depending on the owner's compensation.

For example, consider a business with $500,000 in net income where the owner takes $200,000 in total compensation. The SDE would be $700,000 (adding back the owner's comp). If valued at 3x SDE, the business is worth $2.1 million. The EBITDA would remain $500,000 (owner comp stays as an expense). If valued at 5x EBITDA, the business is worth $2.5 million.

But these multiples vary significantly by industry, size, growth trajectory, and deal structure. The point is not to memorize formulas but to understand which methodology applies to your business and how to present your numbers accordingly.

How This Affects Your Financial Preparation

If you're a smaller, owner-operated business likely to sell on an SDE basis, your preparation should focus on clearly documenting everything the owner takes from the business — salary, health insurance, personal vehicle, travel, meals, and any other benefits. These need to be identified, quantified, and defensible.

If your business is larger and likely to sell on an EBITDA basis, the focus shifts to demonstrating that your earnings are sustainable without the current owner. This means showing that you have management in place, that operations don't depend on you personally, and that your adjusted EBITDA reflects ongoing, repeatable performance.

In both cases, the quality of your bookkeeping determines how credible your numbers are to buyers. Messy books make it impossible to calculate a reliable SDE or EBITDA, which means your valuation is built on a shaky foundation.

Not Sure Where You Stand?

If you're unsure whether your business will be valued on SDE or EBITDA — or whether your financials are structured to support either calculation — take the Sell-Ready Score quiz to get a quick read on your readiness.

Seiji Ueda

SDE vs EBITDA: Which Valuation Method Applies To Your Business?

How To Clean Up QuickBooks Before Selling Your Business

Clean Books vs Deal Ready Books: Why Your Bookkeeper Alone Won’t Prepare You To Sell