How do I get my books clean enough for a buyer to trust them?

A buyer trusts books that agree with each other. BDC’s due diligence guidance lists accountant-prepared year-end financial statements for past years, tax returns and bank statements among the documents a buyer and the buyer’s accountant should be given. It also asks whether the tax returns match the financial statements. So the job is not to polish a report. It is to make every record tell the same story, and to be able to show why when two of them differ.

Make the records reconcile

Start with the three sets a buyer can compare: financial statements, tax returns and bank statements. Ask your accountant to walk through any gap between them and write down the reason for each one. BDC also describes a quality of earnings report, which goes beyond standard financial statements to identify and adjust for non-recurring items, accounting irregularities and risks. If a buyer orders that kind of review, it is better that you have already found the items yourself.

Use one accounting method and count the inventory

CRA’s guidance for self-employed business income describes the accrual method as reporting income in the fiscal period you earn it and deducting expenses in the period you incur them. It also tells you to count inventory at the end of the fiscal period and keep the list with your business records, and to keep a separate set of records for each accounting method you use. Corporations have their own rules, so ask your accountant which ones apply to you. CRA’s page also sets out steps for changing from one method to the other, so do not switch without your accountant.

Keep the supporting records where they can be found

CRA’s keeping-records page covers record formats, paper or electronic, converting paper documents into electronic files, and making backup copies. Treat it as a test of your own filing: can you produce the document behind each entry? BDC adds that before launching a sale you should spend time with your accountant and lawyer to make sure records are clean, up to date, and properly signed and completed.

Explain the personal and one-off items

If the business paid for personal items or had a one-time event, list each one with its supporting document and let your accountant decide how it is shown. A quality of earnings report, which BDC says adjusts for non-recurring items, would look for them, and the add-backs entry explains how they work. Never remove entries or backdate paperwork. Every adjustment should be visible and explainable.