A buyer's diligence team does not reward a business for looking impressive — it rewards one for matching what its own checklist expects to find. Cleaning up the books is an exercise in removing friction, not in improving the underlying number.
Key takeaways
STEP 01 OF 10
Before anything else, instruct the finance function to reconcile the current and prior years' financial statements against what was actually filed with CRA and reported on GST/HST returns. This single step is the first item in deavo's own sale-readiness sequencing, and for good reason: a mismatch here is the fastest way to lose a buyer's confidence in every other number in the data room.
Messy or commingled financials — personal expenses run through the business, cash sales that do not reconcile against GST/HST filings — are named as the number one mistake that lowers a sale price in deavo's own review of failed processes, ahead of concentration risk and even ahead of an unrealistic asking price. See five mistakes that lower your sale price.
STEP 02 OF 10
Two accountants reviewing the same set of books can reasonably normalize a few borderline items differently — a fact deavo names explicitly in its own diligence-flag guidance. Instruct the finance team to apply the same normalization logic year over year, and to write down the reasoning for each add-back rather than presenting a final adjusted number with no supporting trail.
None of the individual flags a diligence team raises — inconsistent add-backs, thin documentation — signal on their own that the underlying business is a bad opportunity. What they signal is that the diligence process will take longer and cost more, which is exactly the friction step one exists to remove.
STEP 03 OF 10
Treadstone Law's own guidance on this exact question names a corporate profile report and certificate of status as the recommended starting point, followed by a lawyer reviewing the corporate records against a diligence checklist before the business goes to market. Order it in the first month, not the week before signing an engagement letter with an advisor.
STEP 04 OF 10
An up-to-date corporate minute book — resolutions, share ledgers, director and officer appointments — is named directly in treadstonelaw's cleaning-up checklist alongside financial statements. A gap here does not change the business's value, but it is exactly the kind of finding that stalls a diligence timeline while it gets manufactured retroactively under time pressure.
See corporate minute book for what a buyer's counsel is actually checking for.
STEP 05 OF 10
A deal report's contract section, per deavo's own description of what buyers actually read, includes lease and key contract details specifically flagged for change-of-control clauses. Instruct the finance or legal function to pull this list before a buyer's counsel does, so a triggering clause is a known negotiating point rather than a surprise found during exclusivity. See reading a deal report for the full contents list a serious buyer expects.
See change-of-control clause and assignment clause for the two provisions that most often need a landlord's or counterparty's consent before closing.
STEP 06 OF 10
Where staff will continue working for the business post-sale, their length of service typically transfers to the buyer under provincial employment-standards continuity rules, which means the buyer's diligence team will price that exposure using the seller's own employee records. Ontario's own guide to the ESA gives the worked example directly: an employee with ten years at the seller, terminated one year after a transfer, is entitled to eight weeks' notice, not one — see continuity of employment.
Confirm hire dates, role history and any outstanding notice or severance calculations are current before a buyer's counsel finds a gap in them. A global payroll of at least $2,500,000 also triggers a separate severance-pay obligation under the ESA for employees with five or more years of service — note that the test is global payroll, not the specific entity's, which is an easy trap in a smaller add-on that never triggered the test as a standalone business.
STEP 07 OF 10
Intellectual property properly documented is named directly in treadstonelaw's checklist, and it is worth treating as its own workstream rather than folding it into the general contracts review. A trademark registered to a founder personally rather than the operating company, or a licence that has quietly lapsed, is exactly the kind of finding that reads worse in diligence than it actually is in substance — and it is cheap to fix months in advance.
Where the business holds a professional, trade or regulatory licence, confirm separately whether that licence is held by the operating company or by an individual. A licence tied to a person rather than the entity does not transfer automatically on a share sale, and it is a structuring question worth raising early rather than discovering during exclusivity.
STEP 08 OF 10
Awareness of any past or pending litigation or tax issues is the final item on treadstonelaw's own list, and the framing matters: the goal is disclosure and a documented resolution status, not the absence of any issue at all. A disclosed, quantified contingency is a negotiating point; an undisclosed one found during diligence is a trust problem that outlasts the specific issue itself.
Bring corporate counsel into this step specifically, rather than leaving it to the finance function. A litigation or reassessment risk that is well understood internally but poorly documented externally reads, to an outside diligence team, exactly the same as one that was never assessed at all.
STEP 09 OF 10
ITA s. 230(4)(b) requires books, records and every supporting voucher to be retained for six years from the end of the last taxation year to which they relate, and s. 230(4.1) requires electronic records to be kept in an electronically readable format for the same period. A business that cannot produce six years of retained, readable records is not just a tax-compliance gap — it is a diligence finding that undermines confidence in everything else being presented as complete.
STEP 10 OF 10
A deal report is not a valuation and it is not a guarantee the numbers will hold up under diligence — deavo is explicit about both points. Its real value, and the reason to build it last rather than first, is that the quality of a deal report tends to say something about how organized the seller's own business actually is. A report assembled from clean underlying records reads as such; one used to paper over disorganized records does not.
Treating normalization as a way to inflate the number rather than explain it. The goal of cleaning up the books is matching what due diligence expects to find, not making the business look better than the records support. A buyer's team is trained to find the gap between the two.
Starting the reconciliation the month the process launches. Last year's books unfinished and no interim statements are named as a specific, avoidable mistake in deavo's own review. Start the financial-first step months before an advisor is engaged, not alongside them.
Leaving change-of-control clauses undiscovered until exclusivity. A landlord or counterparty consent requirement found during exclusivity has far less negotiating leverage behind it than one identified and pre-cleared months earlier.
Building the minute book retroactively under time pressure. Resolutions and share-ledger entries manufactured to match a closing date read exactly like what they are to an experienced buyer's counsel, and raise more questions than they answer.
Skipping the records-retention check because the business has never been audited. The six-year ITA s. 230 retention floor applies regardless of whether CRA has ever reviewed the file. A diligence team will test for it either way.
Scenario. A portfolio company reports EBITDA of $1,200,000 for the trailing year. The finance team identifies three add-backs during clean-up: a personal vehicle lease run through the business at $12,000 a year; a family member on payroll who does not perform an active role, at $45,000 a year; and a one-time litigation settlement of $80,000 recorded in the same year, unrelated to ongoing operations. Adjusted EBITDA: $1,200,000 + $12,000 + $45,000 + $80,000 = $1,337,000. Each add-back is documented separately with its own rationale, so a buyer's diligence team can accept, question, or reject each one individually rather than the adjustment arriving as a single unexplained number.
Deavo's own description of a typical deal report cites two to three years of historical financials plus current interim statements as the standard expectation, though the exact scope varies by process and buyer type.
Not if the logic is documented and applied consistently. A buyer's team expects some normalization — the risk is in inconsistency or an unexplained adjustment, not in the practice itself. See normalisation adjustment and add-back for the underlying mechanics.
Disclose it with its current status and any quantified exposure rather than waiting for a buyer to find it. A disclosed, bounded issue is a negotiating point; a discovered, undisclosed one is a trust problem.
The deal team sets the standard and the timeline; the portfolio company's own finance function has to do the reconciliation work, since it is the only team with direct access to the underlying records and filings.
A 30-minute call is enough to flag the gaps that would otherwise surface mid-process.
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