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.

What is a Quality of Earnings?

Jan 2

Written By Seiji Ueda

If you're a business owner considering a sale in the next few years, you've probably heard the term "Quality of Earnings" but may not be entirely sure what it means or why it matters. Understanding this concept early — well before you're in negotiations — can be the difference between a smooth close and a deal that falls apart in due diligence.

What a Quality of Earnings Report Actually Is

A Quality of Earnings (QoE) report is an independent financial analysis that a buyer (or their advisors) uses to verify whether a business's reported earnings are accurate, sustainable, and repeatable. Think of it as a deep audit of your profitability — not just whether your revenue and expenses are correctly recorded, but whether your earnings will continue after the sale.

Unlike a standard audit or tax return, a QoE goes beyond compliance. It asks harder questions: Are there one-time expenses inflating or deflating your numbers? Is owner compensation reasonable compared to what a hired manager would cost? Are there revenue sources that depend entirely on the current owner's relationships?

What Gets Analyzed in a QoE

A typical QoE report examines several areas of your financials. Revenue quality comes first — the analysis looks at whether your income is recurring, diversified, or concentrated in a few customers. A business where 60% of revenue comes from one client will be scrutinized very differently from one with a broad, stable customer base.

Next is EBITDA normalization. The QoE adjusts your reported EBITDA by removing one-time events, personal expenses run through the business, above- or below-market owner compensation, and other items that don't reflect the ongoing economics of the company. The resulting "adjusted EBITDA" becomes the foundation for valuation.

Working capital analysis is another critical component. Buyers need to understand how much cash the business requires to operate day-to-day. If working capital is seasonal or volatile, that affects the purchase price and deal structure.

Finally, the report examines trends — are margins improving or declining? Is revenue growth organic or driven by one-time contracts? Are there expense categories growing faster than revenue?

Why Sellers Should Care About QoE Before Going to Market

Here's the part most business owners miss: you don't have to wait for a buyer to run a QoE on your business. In fact, you shouldn't.

When sellers enter due diligence without understanding what a QoE will reveal, surprises almost always work against them. EBITDA drops. Add-backs get rejected. The purchase price gets renegotiated downward — or the deal collapses entirely.

By understanding the QoE process before you go to market, you can identify and address issues proactively. Clean up inconsistent revenue recognition. Document your add-backs properly. Make sure your books tell a clear, defensible story.

The Connection Between Bookkeeping and QoE

The quality of your QoE ultimately depends on the quality of your bookkeeping. If your QuickBooks file is a mess — miscategorized expenses, unreconciled accounts, personal and business transactions mixed together — a QoE analysis will expose every single issue.

This is why preparing deal-ready books is so important well before a sale. It's not about making your numbers look good. It's about making them accurate, consistent, and explainable under scrutiny.

When to Start Preparing

The ideal time to start thinking about QoE readiness is 12 to 36 months before a planned sale. This gives you time to clean up historical financials, normalize your earnings, and build a track record of consistent, well-documented results.

If you're curious about where your business stands today, take the Sell-Ready Score quiz for a quick assessment of your financial readiness.

Seiji Ueda

What is a Quality of Earnings?

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