Turning Unstructured Financials Into a Credible Story

The Challenge

A privately held distribution business with decades of steady growth was preparing for a sale but lacked the foundational financial reporting buyers expect. The company operated on a cash-basis accounting method, with no formal inventory tracking (i.e., purchases were expensed immediately, rather than capitalized to inventory) and limited visibility into margins or working capital. 

Like many owner-operated businesses, the leadership team had historically run the company by instinct rather than metrics. But with a sales process approaching, those instincts weren’t enough. Without reliable financials, the company risked reduced buyer interest, prolonged diligence, and unfavorable deal terms driven by uncertainty and skepticism.

Our Approach

We started by building trust with management and conducting a rapid assessment of the existing accounting framework. We advised the client to perform a full physical inventory count, something that had never been done before, and provided clear guidance on the approach, frequency, and controls needed to ensure accuracy. That data became the foundation for a credible margin analysis and a supported inventory position.

We developed a structured methodology to estimate historical inventory balances, enabling us to recast cost of goods sold and present normalized historical gross margins. We also created a defensible working capital peg that reflected the company’s true financial position. These adjustments were clearly presented in our quality of earnings analysis, helping reduce potential diligence friction and buyer skepticism.

The Impact

With credible financials in hand and a clear margin progression story to support the valuation, the company entered the market fully prepared. Our work enabled the investment bankers to craft a compelling CIM and supporting materials with confidence, accelerating the buyer outreach process. Diligence proceeded without disruption, buyers gained confidence in the numbers, and the deal closed on time and at value. Perhaps most important, the business owners avoided a retrading and exited the business on their terms.