{
  "question_id": "CG-MCE-146",
  "slug": "how-to-get-your-books-and-records-ready-to-sell-your-business",
  "display_title": "How do I get my books and financial records ready to sell my business?",
  "format": "article-v2",
  "applies_to": {
    "countries": [
      "US"
    ],
    "frameworks": [],
    "tax_year": null,
    "platforms": []
  },
  "general_concept": true,
  "summary": "Readiness is judged by what a buyer's accountants will test, so before going to market, reconcile every presented period, print statements from the ledger, support each balance with documents, and reconcile each year to its filed return and to bank and processor records you obtain yourself. List owner-benefit and related-party items in a supported schedule instead of deleting them, never rewrite a closed period to make it read better, write up gaps you cannot fix, and share copies, not access.",
  "body": "## What will a buyer's accountants test?\n\nEger CPA's guide to preparing for due diligence calls diligence the buyer's opportunity to test whether the story of the business matches the evidence, and says a buyer and their advisors will examine income statements, balance sheets, cash flow, bank activity, tax returns, and supporting account detail.\n\nThe Public Company Accounting Oversight Board (PCAOB) writes standards for auditors of public companies, not for buyers, but its audit-evidence standard, AS 1105, states a principle that carries over: evidence from a knowledgeable source independent of the company is more reliable than evidence obtained only from internal company sources. Your bank, lender, processor and payroll statements are that outside evidence when you obtain them yourself.\n\n## How far back do the records have to hold up?\n\nTwo things decide it: the periods you present and what is being sold. CliftonLarsonAllen's article on sell-side quality of earnings, written about middle-market deals, advises including three to five years of financial statements and tax returns in the data room. Assume every period you hand over, including year-to-date figures, may be tested, and that the earliest year's opening balances can be questioned.\n\nWhat is being sold changes the reach:\n\n- **The assets and operations.** The buyer's advisers may still test every period you present, as above; ask them whether their review will reach further back.\n- **The ownership of the entity.** CliftonLarsonAllen's 2017 article on stock and asset transactions says a buyer of stock generally inherits the target company's undisclosed liabilities and uncertain tax positions. Because the buyer takes on the entity's undisclosed liabilities (the article notes that for a valid S corporation most potential tax liabilities generally flow through to the shareholders), ask your advisers how far back they expect the review to reach.\n\nUntil the form of sale is settled, prepare every period your advisers expect a buyer of the entity to review.\n\n## What condition do the records need to be in?\n\nCheck every presented period against four conditions:\n\n- **Current and reconciled.** Eger CPA's guide says to begin by bringing your books current, reconcile bank and credit card accounts, review outstanding receivables and payables, and make sure loans, owner contributions, distributions, and fixed assets are recorded correctly.\n- **Balances supported.** Every balance-sheet figure has a schedule and documents behind it at each period end. IRS Publication 538 says that besides your permanent books you must keep any other records necessary to support the entries on your books and tax returns.\n- **Detail ledgers agree.** AccountingTools' entry on subsidiary ledgers advises comparing subsidiary ledger totals to control accounts. On any basis, the fixed-asset register and any inventory records each total to their ledger account; on accrual books, the receivables and payables agings do too. Cash-basis books have no receivable or payable control account; there, the period-end lists described below trace to invoices and bills instead.\n- **Statements come from the ledger.** Print statements from the accounting system as recorded, and put any presentation or normalizing adjustment in a separate schedule that starts from the ledger figure, never in the books. CliftonLarsonAllen's quality-of-earnings article, written about middle-market deals, says confidence erodes immediately when a business relies on spreadsheets and manual bookkeeping.\n\nNever change a closed period to make it read better. If a review or count shows a genuine error in a closed period, take it to your accountant, and to your tax adviser if a filed return is affected; they decide whether and how it is corrected, and the correction is documented.\n\n## How must the books line up with your returns and outside evidence?\n\nMake three comparisons for every presented period:\n\n- **Books to returns.** Reconcile each year's book income to its filed return, listing each difference with its reason and document. Eger CPA's guide says differences between tax returns and internal books can be legitimate, particularly when tax reporting follows different rules or timing, but every difference should be understandable and reconcilable.\n- **Books to bank and card.** Tie each month's receipts and payments to statements you download yourself, not copies passed on by whoever keeps the books.\n- **Books to other third parties.** Agree loans to lender statements, sales to processor and platform reports, and wages to payroll provider reports, each downloaded or requested by you from the lender, processor, platform or payroll provider, not copies passed on by whoever keeps the books.\n\nNever change the books or a filed return to force agreement; an error found in a filed return goes to your tax adviser.\n\n## Which items will not survive scrutiny, and what do you do with each?\n\nEger CPA's guide warns that several minor issues can suggest that the company lacks controls, even when the underlying business is healthy. Check your books for these classes:\n\n| Item | Why it undermines reliance | What to do inside the records |\n|---|---|---|\n| Owner-benefit spending, such as personal travel or family vehicles | Eger CPA's guide says small-business financials often contain owner-specific expenses that do not reflect the earnings available to a new owner. One unlisted item invites doubt about the rest. | List each in the schedule described below |\n| Related-party arrangements, such as rent to your own company, relatives on payroll or owner loans | The PCAOB's related-party standard, AS 2410, notes that except for routine transactions it may not be possible for management to determine what the terms would have been had the parties not been related. | List each party, agreement, terms and amounts by period, with documents |\n| Unexplained adjustments and suspense balances | Eger CPA's guide, writing about differences between returns and books, says a buyer will have less concern about a well-documented adjustment than an unexplained discrepancy. | Record each one's reason and support; have your accountant resolve open balances |\n| Revenue with no outside corroboration | Evidence from a knowledgeable source independent of the business is more reliable than evidence from its own records alone (AS 1105, above), so revenue resting only on your records carries less weight than revenue an outside party reports. | Identify its outside trail, as described below |\n| Inventory or equipment never counted | CliftonLarsonAllen's quality-of-earnings article says that if buyers cannot verify the existence, accuracy, or value of assets, they assume risk is higher. | Count and inspect first, as described below |\n\nFor owner-benefit items, leave the entries as they are and build the schedule Eger CPA's guide describes, identifying the amount, the period, the reason for the adjustment, and the related source document. Deleting or reclassifying them in a closed period breaks the agreement between books, returns and bank statements, and a buyer who finds the gap may read it as concealment. Before any deducted expense is described as personal in a schedule a buyer will see, take it to your tax adviser.\n\n## What if your books are on the cash basis?\n\nIRS Publication 538 says the cash method generally reports income when received and deducts expenses when paid, while the accrual method generally reports income when earned and deducts expenses when incurred. CliftonLarsonAllen's quality-of-earnings article, written about middle-market deals, says that for companies on a cash basis the quality of earnings team normalizes revenue to what GAAP-compliant accrual accounting would show.\n\nFor each period end in the span, list what customers owed you, what you owed, and amounts paid or received in advance, each traced to its invoice or bill and to the date it was settled. Keep these lists as schedules beside the books; do not post them into the cash-basis ledger, which must go on matching the returns already filed. Accrual books already hold these amounts in the ledger as receivables, payables and advance balances. Turning the lists into accrual-basis statements is your accountant's work. Ask your tax adviser before changing how the books or returns are kept: IRS Publication 538 says that if you later want to change your accounting method, you must generally get IRS approval.\n\n## What if much of your revenue is cash or comes through a platform?\n\nIdentify the outside trail each revenue stream leaves, and tie the trails month by month:\n\n- **Bank deposits.** Match takings to deposits. The IRS page on what records to keep says you should keep supporting documents that show the amounts and sources of your gross receipts.\n- **Processor and platform records.** Keep their statements and payout reports, downloaded by you from each processor or platform. The IRS page Understanding your Form 1099-K describes the form as a report of payments you received for goods or services from payment cards, payment apps or online marketplaces, to be used with other records.\n\nSeparate out sales tax and tips collected through a processor, then agree recorded sales with processor and platform reports; their totals, less fees, refunds, chargebacks and amounts newly held back, plus held-back amounts released, with payouts; and payouts plus banked cash with sales deposits, excluding loans, owner contributions, transfers and other non-sales deposits. Explain each remaining difference in writing. Where a stream leaves no outside trail, such as cash spent before it reached the bank, keep its records exactly as they are and state its share of revenue in the gap note described below. Never create invoices or reports after the fact.\n\n## What if inventory or equipment has never been counted?\n\nVerify it before anyone examines it: count the inventory and physically inspect each item on the fixed-asset register. Where you keep perpetual or book inventory records, IRS Publication 538 says you must take a physical inventory at reasonable intervals and adjust the book amount to agree with the actual inventory.\n\nAfterwards the records must show:\n\n- Signed, dated count sheets and inspection lists\n- A comparison of count and books, item by item, with each difference explained\n- A fixed-asset register listing only items that exist, with documents for anything sold, scrapped or lost\n- A ledger that agrees with the count once any correction is recorded, in the period and manner your accountant decides\n\n## What documents must every balance trace to?\n\nThe IRS page on what records to keep says supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks, and that you must keep records to verify certain information about your business assets. File yours by class and period:\n\n- Invoices, sales slips, register reports and receipt books for sales\n- Bills, receipts, canceled checks and electronic payment records for costs\n- Bank, card, processor and platform statements, with any Forms 1099-K\n- Purchase, depreciation, count and disposal records for assets\n- Loan agreements and lender statements for debt\n- Payroll registers and provider reports for wages and payroll liabilities\n- Customer and vendor agreements, leases, insurance policies, licenses and key operating contracts\n- Each filed return with that year's book-to-return reconciliation\n\n## When should this work be done?\n\nBefore you go to market. Eger CPA's guide says preparation should begin well before a letter of intent arrives, and CliftonLarsonAllen's quality-of-earnings article, written about middle-market deals, places pre-market preparation 12 to 24 months before a sale.\n\nOnce a buyer's team holds your figures, every change coincides with their questions and reads as a response rather than a record. Routine bookkeeping in the current open period continues and is recorded normally. If an entry changes a month you have already sent, send the revised report with a note of what changed and why.\n\n## What if a past period cannot be brought to standard in time?\n\nDo not rebuild or rewrite it to look complete. Present it as recorded, with whatever book-to-return reconciliation you can make, and write a gap note that states:\n\n- Which period and accounts fall short\n- What is missing, including any revenue share resting only on your own records\n- What outside evidence covers the period, such as bank statements and the filed return\n- The possible size of the gap, where you can estimate it\n- What you have done since to keep the records to standard\n\nHave the note ready before the buyer's team starts, and agree with your attorney and transaction adviser when it is shared. Eger CPA's guide says that if a requested item does not exist, you should state that clearly instead of leaving a gap. Rebuilding books where the underlying records are incomplete is a separate job.\n\n## How do you let a buyer examine the records while keeping them intact?\n\n### Does locking your books stop changes?\n\nIntuit's help page Lock your books in QuickBooks Online describes two settings: under one, users see a warning but can still make changes; under the other, users must enter a password to make changes. Only the password setting stops changes, and only while the password stays with you. The page's steps begin by signing in as a primary or company admin. Treat anyone with an admin role as able to change the lock. The page does not say whether other users can; unless you can confirm that only you can change it, treat the closed periods as unprotected. Other software's locks differ; check its help for who can change or remove one.\n\nIf your lock only warns, or the person who keeps the books knows the password or holds an admin role, treat the closed periods as unprotected and rely on the frozen copies below.\n\n### How do you control what you send?\n\nSet these up before the first document goes out:\n\n- **Freeze what you provide.** Keep a copy of everything you send, exactly as sent. Export the ledger, trial balance and statements for every presented period yourself, from your own login, and store them where whoever keeps the books cannot change them. Before each response, rerun the same reports for every period you have already sent, compare them line by line with the frozen copies, and investigate any difference before anything goes out.\n- **Log every request.** Eger CPA's guide advises designating one person to coordinate requests, maintain a request log, and confirm that responses are complete.\n- **Give copies, not access.** Provide exports and copies through the data room, never logins to your accounting system, bank or payment accounts. Originals are inspected at your premises and stay there.\n- **Release sensitive detail in stages.** Eger CPA's guide advises limiting access to sensitive information until it is appropriate in the transaction, especially customer-level data, employee records, pricing details and proprietary materials, and says your attorney and transaction advisor can help determine what to share at each stage.\n\nConfidentiality terms and pre-closing access belong in the sale documents, your attorney's work.\n\n## Do your records pass the readiness check?\n\nMark each line, from statements down to evidence:\n\n| Check | Pass when | Pass or fail |\n|---|---|---|\n| Statements | Printed from the accounting system as recorded; adjustments only in a schedule starting from the ledger figure | |\n| Returns | Each year's book income reconciles to its filed return, each difference explained and documented | |\n| Bank and card | Every month reconciled to statements you downloaded yourself | |\n| Revenue | Sales tie to processor and platform reports obtained by you, payouts, deposits and any Forms 1099-K, differences explained; any uncorroborated share in the gap note | |\n| Receivables and payables | Agings total to control accounts at each period end; on the cash basis, period-end lists trace to invoices and bills | |\n| Inventory | Counted, count sheets signed and dated, differences explained, ledger agrees | |\n| Fixed assets | Each register item inspected or its disposal documented, with its purchase document and depreciation record on file; register agrees with ledger | |\n| Loans | Balances agree to lender statements obtained by you; agreements on file | |\n| Payroll | Wages and payroll liabilities agree to payroll registers and provider reports obtained by you | |\n| Other balances | Owner contributions and distributions, taxes payable, prepaid amounts and all other balances scheduled and documented at each period end | |\n| Sales and cost documents | Recorded sales and costs trace to invoices, slips, bills, receipts or payment records, filed by class and period | |\n| Contracts | Customer, vendor, lease, insurance and other key agreements on file | |\n| Owner-benefit items | Each listed with amount, period, reason and source document; nothing deleted | |\n| Related parties | Each arrangement listed with party, agreement, terms and amounts by period | |\n| Adjustments | Each adjusting entry and suspense balance has a written reason and support | |\n| Gaps | Any period below standard has a gap note ready | |\n| Lock | Changes to closed periods need a password only you hold (in QuickBooks Online, the password setting), and you have confirmed that no one else can change or remove the lock; if you cannot confirm who can, closed periods count as unprotected | |\n| Frozen copies | Exported by you and compared with the ledger before each response; request log kept | |",
  "sources": [
    {
      "id": "REF::1",
      "url": "https://egercpas.com/2026/07/how-to-prepare-for-due-diligence/",
      "title": "How to Prepare for Due Diligence Before a Deal",
      "publisher": "Eger CPA",
      "published": "July 14, 2026",
      "retrieved_at": "2026-09-30T05:43:07+00:00",
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      "url": "https://pcaobus.org/oversight/standards/auditing-standards/details/AS1105",
      "title": "AS 1105: Audit Evidence",
      "publisher": "Public Company Accounting Oversight Board",
      "published": "PCAOB Release No. 2010-004",
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      "id": "REF::3",
      "url": "https://www.claconnect.com/en/resources/blogs/private-equity/how-a-sellside-quality-of-earnings-can-help-close-a-business-sale",
      "title": "How a Sell-side Quality of Earnings Can Help Close a Business Sale",
      "publisher": "CliftonLarsonAllen",
      "published": "6/1/2026",
      "retrieved_at": "2026-09-30T05:43:07+00:00",
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      "url": "https://www.claconnect.com/en/resources/articles/2017/stock-or-asset-transaction-tax-considerations-for-mergers-and-acquisitions",
      "title": "Stock or Asset Transaction Tax Considerations for Mergers and Acquisitions",
      "publisher": "CliftonLarsonAllen",
      "published": "10/16/2017",
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      "url": "https://www.irs.gov/publications/p538",
      "title": "Publication 538 (01/2022), Accounting Periods and Methods",
      "publisher": "Internal Revenue Service",
      "published": "Revised January 2022",
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      "id": "REF::6",
      "url": "https://www.accountingtools.com/articles/what-is-a-subsidiary-ledger.html",
      "title": "Subsidiary ledger definition",
      "publisher": "AccountingTools",
      "published": "last updated May 15, 2026",
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      "url": "https://pcaobus.org/oversight/standards/auditing-standards/details/AS2410",
      "title": "AS 2410: Related Parties",
      "publisher": "Public Company Accounting Oversight Board",
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      "title": "What kind of records should I keep",
      "publisher": "Internal Revenue Service",
      "published": "page last reviewed or updated 03-Aug-2026",
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      "title": "Lock your books in QuickBooks Online",
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      "slug": "how-to-handle-the-books-after-you-buy-a-small-business",
      "display_title": "I just bought a small business — do I keep the seller's books or start new ones, and how do I record the purchase?"
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      "display_title": "I'm closing or dissolving my business — what final bookkeeping do I have to do, and what happens to the records afterwards?"
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