The REAL Reason Why People Are NOT Buying Your Business
Updated on June 21, 2025
Transcript
What is the one thing buyers judge your business on? What is the one thing that, if it is out of whack, your dreams of exiting for millions of dollars will come crashing down all around you? Well, it is the most annoying, most tedious thing for most of us out there. As entrepreneurs, we tend to be big picture thinkers, creative thinkers, and rarely do we ever get in the weeds on anything as our ADHD rages out of control. But this one thing is everything. If you don't have it and you think you're going to sell for multiple seven figures or even eight figures, then you better think again.
That one thing: an accounting system. Yes, today we are talking about counting beans.
So, I have a funny story to share with you. I have a good friend who runs a multiple seven-figure business, and he asked me for some advice for his exit. As we dug deeper into everything he had done, I realized something was missing—he had no easy way to show money going in and money going out. Now, this guy's making a lot of money, very, very profitable, but no centralized system at all. In fact, I told him, "Hey man, you need a professional to look at these numbers and to build you an actual accounting system." His first instinct was to do what a lot of entrepreneurs do: "I'll just do it myself, right? How hard could it be?" He made an incredibly fancy spreadsheet and, on the surface, it did look fine. Nothing crazy, but nothing good, either.
But the issue was, this sheet was not really attached to anything in the business. In short, it was not good enough, did not pass go, and would not allow him to collect 10 million. Now, if you're selling an ultra-simple business, say like a YouTube channel, an affiliate site, something like that, you likely won't need a super robust accounting system like what I'm telling my friend to go get. But if you are selling a more complex business with a lot of different moving parts, like, say, a service business, then you must put in your dues. You need to pay respects to the bean counters, right? Your entire valuation and the strength of your business will be decided by buyers who will be analyzing how good your accounting system is. Because that accounting system is kind of the palace of truth, it's where it all shines. And if your accounting system isn't very good, or in this case didn't even exist, they're like, "Well, what am I even doing due diligence on, right? You don't have anything for me to look at."
So, let's talk about what an accounting system is when it comes time to sell your business.
Let's start with the basics. An accounting system isn't just tracking money in and money out. It's a comprehensive framework that gives you complete visibility on your business's financial health. A real accounting system includes things like a chart of accounts, which categorizes every transaction—not just "money came in," but specifically from what revenue stream, what type of customer, what marketing channel—all that kind of stuff.
We also want to have cash flow management, understanding when money actually hits your account versus when you earned it. The timing differences can kill businesses if you don't do this right, depending on the type of business you are in. Next is your accounting system should have good expense tracking, right? Not just "I spent money on marketing today," but a detailed breakdown of your costs—customer acquisition cost, your LTV, your ROI by channel. What channels are you even paying money to? Like, "Oh, I didn't realize I was spending a thousand dollars a month on YouTube ads because I forgot to log in and turn the ad off," right? These are things a good accounting system can help you catch and make sure things don't get out of control. We're all signed up to a million and one SaaS tools these days. This is pretty crucial to making sure you're not spending money where you have a death by a thousand cuts of MRR, right?
Next is financial reporting. Your accounting system will show you things like your profit and loss statements, your balance sheets, and cash flow statements. And unlike that spreadsheet my buddy made, these things will actually mean something because they are connected to your actual business—not just a spreadsheet, but it's actually connected in real time, updating, or you have an accountant that's closing the books every single month for you.
And the last bit of a robust accounting system is your tax preparation integration. While you will be tempted to do everything in your power to lower the burden of your taxes, remember that it can be a bit of a double-edged sword when it comes to selling your business. If the buyer uses any sort of traditional financing leverage—which is likely, depending on the complexity of your business and how big it is—then it's also likely you're going to need to reconcile your taxes with your P&L, which is not a fun process, let me tell you.
So, think of it like this: If your business was a car, a spreadsheet is like guessing your speed by looking out the window. An accounting system is your dashboard inside your car. It shows you exactly how fast you're going, how much fuel you have, and when you need maintenance. Little lights pop up, right?
Most importantly, in today's age of technology, your accounting system should be this dynamic, centralized hub that is plugged into everything in your business. This means your banking, your payment processing, your credit card transactions—the whole thing should be inputted into a centralized hub to create these financial documents for your business. And the easiest way to do this, by the way, it doesn't have to be crazy hard, especially if you're just starting out. You just need a QuickBooks account or a Xero account to really get started.
Now, I hear you: "But wait, why would I get a QuickBooks subscription when I could just use Google Sheets?" Hey, I get it. Spreadsheets feel simple, they're free, they can technically do the job in a lot of ways. And they do seem like enough when you're just starting out, right? But this becomes a ticking time bomb that becomes worse and worse to undo the further your business gets along from that starting line.
The first problem is there's no real-time accuracy. Your spreadsheets are probably weeks out of date, maybe even months out of date. So, you're always working with old data—no good when it comes to trying to sell your business, or if you're in a business in a very fast-moving market, right? So that could be really, really bad, too. Keep that in mind.
Problem number two is human error and manipulation. Yes, you can make your spreadsheets locked so other people can't do anything, but that also means that you might not be doing the right thing when you enter data and you might be the one making the manual error. So, we want to have some kind of system like QuickBooks or Xero that helps us catch these manipulations of the data—these, you know, happy accidents or, more likely, unhappy accidents.
The next is no financial controls. Spreadsheets can't prevent you from accidentally categorizing a $10,000 equipment purchase as office supplies when it's something totally different. An accounting system can flag unusual transactions, can catch fraud, and you can be completely exposed to the inner workings of your business much, much easier if you have a centralized accounting system that flags these kinds of things, which a Google Sheet won't do. You could put rules in there, I guess, but why recreate the wheel?
Next is the scaling nightmare. Spreadsheets are great—until they're not. And I would argue in this situation they're almost never great. By the time you've scaled past their usefulness, transferring everything over to an actual accounting system can be a complete and utter nightmare, not to mention a Herculean task. Like my buddy, who I was talking about earlier in this video, probably spent about a month and a half trying to do it himself when he could have just paid an actual accountant like six grand to go in there and do it for him and save all that time. The time he was helping create these systems could have been spent growing the business and letting the accountant just do it. Because in the end, that's what happened—the accountant needed to go in and do everything again. So, it can be an absolute nightmare, a real pain in the butt, to switch everything over.
Finally, tax and legal compliance. Maybe this doesn't matter to you if you're in a tax haven or whatever, but the IRS in general doesn't accept, "Oh, I think I made money according to this spreadsheet that I have that's not connected to anything." If you get audited with just spreadsheets, you're in for a world of pain as you try to find all these miscellaneous receipts and all this other documentation. It could be a real nightmare.
So again, you should just get a QuickBooks account or a Xero account.
So, let's get serious here. When it comes to selling your business, the reason why you need this robust accounting system, especially if you have a multiple seven-figure business, is because when a high net worth investor or private equity firm or whatever is looking to acquire your business, they're going to be doing what is known as financial due diligence. They're going to want to see audited financial statements going back three to five years—usually five, but almost always a minimum of three. A detailed P&L breakdown by product line, customer segment, time period. They'll want clean cash flow statements that prove your profitability is real and sustainable, and that they can see where all the money is going to the different areas of the business. Proper revenue recognition that's following accounting standards like GAAP. Dense categorization, as well, that makes sense.
And if you show up with a bunch of spreadsheets and shoeboxes of receipts, they're not going to be looking at you like a serious person to get acquired. I mean, even if you try to hide the fact that you don't have this, it can still take you well over a month to get all this stuff figured out and factored in before you send it over to them. How do you think that buyer is going to feel? Like, "Wow, this seller really doesn't have their shit together." You'd think that this would be a relatively easy thing to give—maybe a week, at most two weeks—but a month, month and a half, because you didn't tell them you're building the whole thing from scratch? This really will turn off serious buyers that can make you seriously wealthy.
So, it's totally 100% worth it for you to go and hire an accountant to help you set up a robust accounting system that, once you set it up once, is just a monthly fee you're paying, just like you do with anything else. And it's going to give you so much insight into your business that even if you don't sell, you should have this because it's going to help you make such better decisions.
Some of those better decisions, even if you decide not to sell your business, include things like cash flow forecasting. When you have a real robust system, now you can start doing stuff like this. You'll know exactly when you have a cash crunch before it really happens. You'll be able to plan your growth without running out of money—well, hopefully you'll be able to plan easier, at least for that.
You can also do profitability analysis. If you're in e-commerce, for example, you can discover which products are actually making you money and which ones are kind of losers that maybe you should get rid of. I've seen businesses increase profits by 40% just by cutting unprofitable offerings that they didn't even know they were losing money on until they did a deeper analysis on their own stores. This is a store that had, like, thousands of SKUs, so there's a lot going on. But still, with a good centralized system, you'd be able to break down that business SKU by SKU.
Next is investment decisions. If you have a good accounting system, you can decide, "Hey, should I hire that next employee? What should their wages be? Should I lease that new equipment? Well, based on the last time I leased more equipment, this is what happened. Should I expand into a new market? What does that look like?" With actual numbers at your disposal—actual numbers that your business is doing—these decisions don't suddenly become magically easy, but they do become much, much easier to make instead of expensive guesses.
Next is lending and investment. Maybe you aren't going to sell your business, but you want to get money so you can grow your business in a dramatic way. If you want a business loan, investment capital, lenders and investors need real financial statements in order for them to make decisions. No spreadsheets, no money—they want an actual accounting system.
Here is another secret. Most business owners will run their business on what is known as cash basis accounting, which is largely fine by the way for day-to-day operations. But when you go to sell your business, you really want everything to be done in what is known as an accrual format. I'm not going to go into the difference between cash basis and accrual right now; I believe I had another video on the channel talking about that. But this is infinitely easier for you to do if you have a real accounting system set up.
The reason why you want the ability to switch is that just by switching your accounting from cash basis to accrual can lead to a massive increase in your valuation. Not to mention, actually having these systems will make it easier for you to understand what you need to do in order to increase your valuation. I believe there was an example we had a few years ago of a business that was, I think, like $1.3, $1.4 million on a cash basis accounting; once you apply accrual, it was a lot closer to $2 million. That's pretty worth the switch, right? Like an extra $700k in your pocket when you go to sell the business.
Okay, so what should you do here in terms of setting up your own accounting system for your business? Well, the answer is pretty simple. You need to do two things. If you don't have QuickBooks or a Xero account, go get them. And then, the next thing you need to do is find an accountant, ideally one that has worked in businesses like what you do. So, if you're e-commerce, find an e-commerce accountant. If you're an agency, find an agency accountant. Just so they have some experience with how your business model works, and then tell them what you want to do about creating this robust system.
That is probably going to be a painful upfront cost—like five, ten grand to get everything all set up. But afterwards, it becomes a lower monthly fee where these people can just be closing out your books every single month for you, and now you're in perfect financial health in terms of the financial picture you can see. Maybe not perfect financial health, but a perfect picture, so you can make way, way better decisions.
By having this together, now you might be able to sell your business for multiple millions of dollars, maybe even above $10 million. And if you have a big business and you want us to do this for you because you want to sell your business, well, good news, my friend. When you submit your business with Empire Flippers, part of our vetting is building out your profit and loss statement. So, we do a lot of this work for you. We're not accountants by any means, but hey, we have sold over 2,400 businesses.
So, if you don't want to hire an accountant and you just want to sell your business, go ahead and click the link down below or go to empireflippers.com/sell. See you later.
