# The Clean-Books Checklist

A buyer and their lender read your books before they read anything else, and messy books cost you twice: once in a lower price, and once in a deal that dies in diligence when a number will not tie out. "Clean" has a specific meaning to a buyer, and it is not the same as "the taxes got filed." It means the statements are separated, reconciled, consistent, and add-back-ready, so a stranger can trust them in an afternoon. This checklist is what that looks like. Run it with your CPA, because the judgment calls here are theirs, not yours.

Work each item to a Yes. The filled example is Ridgeline Heating & Air, where 4 of the 8 sections still had a No when the owner started, which is normal a year before a sale and very fixable.

> Clean books are not a tax exercise. They are the proof a buyer pays up for, or the reason they walk.

## 1. Separation: no commingling

The fastest way to lose a buyer's trust is a personal charge on the business card. A buyer cannot tell your real operating cost from your lifestyle if the two are mixed, so they assume the worst. In the example, the owner found 14 personal charges a month running through the business account and moved them to a personal card.

- [x] One business checking account, used only for the business
- [x] One business credit card, used only for the business
- [x] Personal expenses moved off the business entirely (or clearly tagged for the add-back schedule)
- [x] Owner draws and distributions recorded as such, not as expenses

## 2. Reconciliation: the books match the bank

A statement that does not reconcile to the bank is not a statement, it is a guess. Every account should tie to the bank and card statements every month, with no stale uncleared items. The example had 2 months of unreconciled entries that took the bookkeeper a week to clear.

- [x] Every bank and card account reconciled monthly
- [x] Reconciliation current within 30 days
- [ ] No uncleared transactions older than 60 days
- [x] Undeposited funds and clearing accounts at zero at month-end

## 3. Consistency: one method, one chart

A buyer compares year to year, so the method has to hold across all 3 years. Switching between cash and accrual, or renaming accounts each year, makes the trend unreadable and reads as something hidden. In the example, the chart of accounts had grown to 140 lines and got trimmed to a clean 70 the buyer could follow.

- [x] Same accounting method (cash or accrual) across all 3 years
- [x] A consistent, sensible chart of accounts, not sprawling
- [x] Revenue recognized the same way every period
- [ ] Prior-year comparatives restated if the method changed

## 4. The tax-return match

The single check a lender always runs: do the books match the filed tax returns. Any gap between what you report to the buyer and what you reported to the IRS is a red flag that stops a loan. The example had a $9,000 difference from a miscoded equipment purchase that the CPA reconciled and documented.

- [x] Book revenue and net income tie to the tax returns, all 3 years
- [x] Any difference explained in a written reconciliation
- [x] Depreciation schedule matches the return
- [x] Owner compensation on the books matches the W-2 and payroll filings

## 5. Add-back-ready

The add-backs are how a buyer sees your true earnings, but only if each one is documented and defensible. An add-back you cannot prove is one a buyer strikes, and it comes straight off the price. Build the schedule in `add-backs-worksheet.xlsx` and have your CPA confirm each line. In the example, 10 add-back lines were documented and 1 aggressive one was dropped before it embarrassed the seller.

- [x] Owner compensation and benefits documented for the add-back
- [x] Personal and discretionary items itemized with support
- [x] One-time and non-recurring items named and dated, not vague
- [x] A market-rate manager subtracted if the buyer will not run it themselves

## 6. Receivables and payables current

A buyer reads your aging to see if the revenue is real and the bills are paid. A pile of receivables over 90 days says either the customers are weak or the collections are, and both come out of the price. The example carried $31,000 over 15 days and worked it down before going to market.

- [x] A/R aging clean, with over-90-day balances explained
- [x] Bad debt written off, not sitting on the books inflating assets
- [ ] A/P current, with no hidden or off-book liabilities
- [x] Any owner loans to or from the business documented

## 7. Payroll and classification clean

A worker misclassified as a contractor is a liability a buyer will find and price in, or use to walk. This is a CPA and attorney question, not a guess. The example had 2 long-term contractors reviewed and correctly reclassified before diligence.

- [x] Employees and contractors classified correctly, CPA-reviewed
- [x] Payroll taxes filed and current, no open notices
- [x] PTO and any accrued liabilities on the books
- [x] Benefits costs recorded accurately

## 8. Presentable and current

Clean books that are 4 months stale still fail. A buyer wants statements current to last month, produced on a normal close cadence, so they know the business is run on its numbers. The example moved from a 6-week close to a 10-day close over a quarter.

- [x] Monthly close completed within 15 days of month-end
- [x] Statements presentable without a scramble
- [x] A named person owns the close each month
- [ ] Trailing-12-month figures available on request

## Score it, then hand it to your CPA

Count your Yes answers. The example started at 28 Yes of 32 and drove the 4 open items to Yes over one quarter, which is the normal runway: give clean books about 12 months before a sale, not 12 days. The 4 items still open above (uncleared items, restated comparatives, A/P confirmation, and trailing-12 figures) are exactly the punch list to hand your bookkeeper and CPA this week.

Every judgment here (method, classification, what qualifies as an add-back, how to reconcile a tax difference) is a licensed CPA's call, not this checklist's. This is general business and financial education, not accounting, tax, legal, or investment advice, and it makes no promise about your results. Your books are specific to your business. Work with a licensed CPA who knows them, and route your estimated sale price and three scores to the free Keystone diagnostic at https://app.trykeystone.io.
