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Messy books cost trades owners more at the closing table than almost anything else. Here's what buyers check first in a trades company's financials, and how to get ready.
Before a buyer cares about your growth story, they check whether your numbers can be trusted. They look at monthly financial statements, add-backs (personal and one-time expenses), job costing and gross margin by service line, revenue by customer, and whether tax returns match the books. Many larger buyers order a quality-of-earnings (QoE) review. Every dollar of profit you can't prove is a dollar they won't pay for.
I'll say the quiet part out loud.
Most trades businesses run their books to pay as little tax as possible. That's smart while you own it.
It's expensive when you sell it.
Because a buyer pays a multiple of profit. Hide a dollar of profit from the IRS and you may also hide several dollars from the buyer.
The five things buyers check first
- Monthly financials, not just a year-end tax return. Buyers want to see seasonality, trends, and whether last summer was a fluke.
- Add-backs. The truck your kid drives. The family on payroll. The one-time legal bill. Every add-back needs a receipt and a reason. If you can't prove it, it doesn't count.
- Gross margin by service line. Service, replacement, new construction, recurring routes, and commercial work all behave differently. Buyers want to know which one makes the money.
- Customer concentration. If one builder, general contractor, HOA, or property manager drives a big slice of revenue, that's risk.
- Books that match the tax returns. If they don't, expect a long conversation and a lower price.
What a quality-of-earnings review is
Larger buyers hire an accounting firm to tear your numbers apart before closing. It's called a quality-of-earnings review, or QoE.
Their job is to find reasons your profit is lower than you say. Every adjustment they find comes off the price, sometimes after you've already shaken hands.
The owners who get through QoE cleanly usually did one thing: they ran their own version first.
Get audit-ready in 12 months
- Close the books monthly. Within 15 days of month-end, every month.
- Separate personal from business. Starting now, not the year you sell.
- Track job costing. Labor, materials, and overhead by job and by service line.
- Build your add-back file. A folder with every add-back, the proof, and the reason.
- Get a CPA who understands deals. Not just taxes.
The candid part
Cleaning up your books may mean paying more tax for a year or two. Owners hate hearing that.
But run the math. A bit more tax on a dollar of profit costs you cents. That same dollar, proven and multiplied by a buyer, could be worth several dollars at closing. That's the trade.
FAQ
What financial documents do I need to sell my trades business? Typically three years of tax returns, monthly profit and loss statements and balance sheets, a list of add-backs with documentation, revenue by customer and service line, and details on maintenance agreements and backlog.
What is a quality of earnings report? A quality-of-earnings (QoE) report is an independent review of a company's financials, usually ordered by the buyer. It tests whether reported earnings are accurate and sustainable, and it often leads to price adjustments.
What are add-backs when selling a business? Add-backs are expenses that won't continue under a new owner, such as the owner's personal expenses, above-market owner salary, or one-time costs. They're added back to profit to show true earnings, but each must be documented.
Would your books survive a buyer's review? Take the Exit Readiness Scorecard. Or book a discovery call.
