If you are the CFO of a PE-backed company, the exit is your exam. Every number you have reported, every adjustment you have made, every metric in every board deck will be tested by a team of people whose job is to find problems.
This is not a criticism of the diligence process. It is the reality of it. And the CFO is the person who owns the numbers that get tested.
I have watched CFOs walk into diligence with varying degrees of preparation. The ones who prepared well had one thing in common. They did not wait for the banker to tell them what to fix. They operated as though diligence could start at any moment. David Dean, who has led more mid-market exits than most people will see in a career, puts it simply. Operate like you are always six months from an exit.
That mindset changes behavior. Here are the five things it changes most.
1. Revenue reconciliation across CRM, billing, and GL
This is the number one finding in sell-side QoE reports. Revenue reported from the CRM does not match revenue in the billing system does not match revenue recognized in the GL.
The gap is rarely large in percentage terms. Usually 1% to 4%. But the existence of the gap, and the time it takes to explain it, causes more damage than the dollar amount suggests. When a buyer’s QoE team cannot tie your revenue across systems in the first week of diligence, they start questioning everything else.
What good looks like. A monthly reconciliation process that ties booking (CRM), billing (invoicing or subscription platform), and recognized revenue (GL). For each month, a documented variance analysis explaining the differences. Timing differences between booking and recognition. Credit memos applied in one system but not yet reflected in another. Manual adjustments with clear audit trails.
The standard to hit. Monthly reconciliation completing within two business days of month-end close. Unexplained variance below 0.5% of revenue. Documentation that a first-time reader can follow without calling the person who built it.
Effort to build this. If you do not have a reconciliation process today, expect 40 to 60 hours to build the initial template, run the first three months of historical reconciliation, and document the methodology. After that, 4 to 8 hours per month to maintain. Assign this to your controller or senior accountant. It cannot live in the CFO’s personal workbook.
Common mistake. Building the reconciliation for the most recent quarter only. The QoE team will ask for 36 months. If you only have clean reconciliation for the last 3, you will spend diligence rebuilding the other 33. Start with the most recent quarter to build the template, then work backwards.
2. EBITDA adjustment documentation
Every mid-market company has EBITDA adjustments. Owner compensation, one-time expenses, facility costs, litigation settlements, acquisition-related charges. The adjustments themselves are expected. What triggers QoE findings is how they are documented.
The problem I see repeatedly is the same one. The CFO maintains a master adjustment spreadsheet with formulas that reference other workbooks, tabs that link to files on a local drive, and notes that make sense to the person who wrote them but nobody else. When the QoE team asks to “walk through the adjustments,” the walk-through takes four days instead of four hours.
What good looks like. A one-page summary for each material EBITDA adjustment. Each summary contains five things.
- Description of the adjustment in plain language
- Dollar amount with the calculation shown
- Source transaction references (invoice numbers, GL account codes, contract dates)
- Approval and review history (who approved this adjustment and when)
- Rationale for why this is a legitimate add-back or normalization
If you have $3M in total adjustments across eight line items, you should have eight one-pagers. Total documentation package: eight pages plus source documents.
Effort to build this. 20 to 30 hours for the initial documentation of all current adjustments. Maintain going forward by creating the one-pager at the time each adjustment is made rather than reconstructing them months later.
The threshold that matters. QoE teams typically scrutinize individual adjustments above $100K and total adjustments above 10% of reported EBITDA. If your adjustments are 15% of EBITDA, expect every line to be tested. Have the documentation ready before they ask.
3. Flash report speed
How quickly your company can produce reliable financial results after month-end tells the buyer something important about your data infrastructure. A fast close signals automated processes, clean data, and a finance team that is in control. A slow close signals manual reconciliation, data quality issues, and a team that is working harder than they should.
Target benchmarks. Preliminary flash report (revenue, key expenses, estimated EBITDA) within 2 to 3 business days of month-end. Full management reporting package (P&L, balance sheet, KPIs, variance analysis) within 5 to 7 business days. Board-ready materials within 10 business days.
For comparison, the best-run mid-market companies I work with produce a preliminary flash on day 2 and a full package by day 5. Companies with data infrastructure problems often take 15 to 20 business days, sometimes longer.
Why this matters for exit value. During diligence, the buyer will ask for monthly financials updated through the most recent close. If your most recent close was six weeks ago because you are running behind, that is a red flag. If your most recent close was five days ago and the numbers are clean, that signals operational maturity.
Post-close, the PE firm expects monthly reporting on their timeline, not yours. If you cannot produce reliable financials within a week of month-end, the buyer knows they will need to invest in the finance function. That investment gets priced into the deal.
Effort to improve. Reducing close time from 15 days to 7 days typically takes 2 to 3 months of process improvement. The biggest gains come from three changes. Automating recurring journal entries. Eliminating manual data transfers between systems by building automated feeds. Pre-closing accruals and estimates rather than waiting for final invoices. These are process changes, not technology investments. They require the CFO’s time to redesign the close process, but minimal capital.
4. Customer concentration and retention metrics
Buyers test customer metrics more aggressively than most CFOs expect. The reason is that customer concentration and retention are the two biggest predictors of revenue durability, which is the single most important input to the buyer’s valuation model.
Customer concentration. Know your numbers cold. Revenue from your top customer, top 5, top 10, and top 20 as a percentage of total revenue. Trend these over four quarters. If concentration is increasing, have the explanation ready. If your top customer is above 15% of revenue, expect detailed questions about the relationship, contract terms, renewal probability, and what happens if they leave.
Retention metrics. This is where methodology alignment matters. Calculate retention three ways.
- Logo retention (percentage of customers retained period over period)
- Gross revenue retention (revenue retained from existing customers, excluding expansion)
- Net revenue retention (revenue retained including expansion and upsell)
For each metric, document the exact methodology. What counts as a customer? What is the measurement period? How are customers acquired through acquisition handled? Are there minimum revenue thresholds?
Why methodology matters. The buyer will recalculate your retention using their methodology. If their number differs from yours by more than 2 to 3 points, the conversation shifts from “tell us about your retention” to “why do your numbers not match ours.” That is a conversation you want to avoid.
I have seen deals where the seller reported 92% logo retention and the buyer calculated 87%. Both numbers were defensible. Different definitions, different time windows, different minimum thresholds. But the gap created a narrative problem that took weeks to resolve and shifted the buyer’s growth assumptions downward.
Effort to align. Ask your banker or advisor what retention methodology the likely buyer universe uses. Then calculate your retention using that methodology alongside your own. Present both in your management materials. This transparency costs nothing and prevents the methodology gap from becoming a trust issue.
5. Working capital normalization
Working capital is where many CFOs get caught underprepared. The target working capital peg in the purchase agreement will be based on a normalized analysis of your trailing 12 months. If your working capital has seasonality, unusual spikes, or trends that are not well documented, the negotiation becomes contentious.
What good looks like. A trailing 12-month working capital analysis showing each component (accounts receivable, inventory, prepaid expenses, accounts payable, accrued liabilities) with monthly detail. Seasonal patterns identified and documented. Unusual items flagged with explanations. A clear view of what “normal” looks like for your business.
The adjustments that create disputes. Working capital disputes in PE transactions most commonly arise from three sources. Seasonal businesses where the buyer and seller disagree on the normalization methodology. One-time items (a large prepaid, an inventory build for a specific contract) that distort the trailing average. Changes in payment terms with key customers or vendors that shifted the working capital profile mid-period.
Effort to build this. If you have clean monthly balance sheet data, the analysis takes 10 to 15 hours to build initially. The key is doing it before the LOI, not during diligence when every number is being scrutinized under time pressure.
Tactical recommendation. Run the working capital normalization analysis quarterly, starting at least 12 months before a potential exit. Each quarter, update the trailing 12-month view. When exit preparation begins, you have a seasoned analysis that reflects multiple periods, not a rushed calculation built during diligence.
The six-month countdown
If your exit is six months away, here is how to sequence this work.
Months 6 to 5. Build the revenue reconciliation process and run the first historical reconciliation. Start the flash report improvement work. Begin documenting EBITDA adjustments.
Months 4 to 3. Complete the historical revenue reconciliation (36 months). Align customer retention methodology with expected buyer methodology. Run the first working capital normalization analysis. Aim for flash reports within 7 days.
Months 2 to 1. Run a mock diligence data request. Test whether the team can produce the key deliverables within the expected timeframes. Fix gaps. Update documentation. Hit the 5-day flash target.
Throughout. Maintain all documentation in a shared location (not personal drives or local Excel files). Cross-train at least one other person on every critical process. The CFO should not be the only person who can produce any of these deliverables.
The question that changes everything
Here is the test I recommend to every CFO preparing for an exit.
If you were hit by a bus tomorrow, could your team produce a complete, accurate monthly financial package within five business days? Could they explain every EBITDA adjustment? Could they reconcile revenue across systems? Could they answer a buyer’s retention question with a documented methodology?
If the answer is yes, you are ready.
If the answer is no, you know where the work is.
The goal is not to make the CFO unnecessary. It is to make the data infrastructure resilient enough that the numbers survive scrutiny from people who have never seen them before. That is what diligence is. Strangers testing your numbers under time pressure. The CFOs who prepare for that reality protect their company’s valuation. The ones who do not end up spending diligence explaining variances instead of negotiating terms.
For a structured approach to the full data readiness picture beyond the CFO’s domain, see PE Exit Readiness: The Data Checklist Most Teams Miss.
For the complete list of questions buyers ask during data diligence, start with The Complete Data Diligence Guide.
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