Prepare Sell Side Due Diligence With Ten P&L Checks

Reconcile the Report to the Closed Books

Start with a dated profit and loss report and its underlying ledger. Have the finance owner explain the period, accounting basis, closing status, and any entries still awaiting review. A buyer-facing summary should be reproducible from the version of the books it describes.

Keep the bridge from ledger totals to the management report. If different exports disagree, resolve the scope, date, or posting difference before sharing another version. Preserve the original reports and the explanation for a correction rather than silently replacing the file everyone has already used.

Separate Revenue by What You Sell

Distinguish managed services, recurring product, hardware, and projects. The model targets 50% gross margin for managed services and projects, and about 30% for recurring product and hardware. Monthly billing doesn't turn resold licenses into managed-service revenue.

Gross margin is revenue less the direct cost of delivering it, divided by revenue. Keep the matched revenue and costs on the same basis. For a separately sold resold-service line, identify that category explicitly; the model's 70% target belongs there, not to managed seats or recurring product.

Trace Supplier Cost to the Revenue Line

Check the supplier charges behind each product and service group. Keep equipment purchases with hardware, recurring product purchases with that product revenue, and delivery tools with managed services. Split mixed invoices using records that explain what was bought.

Have the finance owner review missing invoices, credits, timing differences, and estimates through the normal close process. Show which figures are settled and which remain estimates. A delayed supplier invoice should prompt investigation before an apparent margin improvement becomes part of the sale story.

Put Delivery Labor in Delivery

The model's managed-services labor includes support, TAM, vCIO, centralized work, on-call pay, and service management where present. Account roles belong in delivery even when they report to the owner. Moving them into general overhead changes the service-margin basis.

Allocate shared work using an approach the team can reproduce. Include the owner's technical delivery work at fair-market pay, counted once within total compensation. Have delivery check that the allocation describes the work performed, then reconcile it with finance's payroll total.

Reconcile Burdened Pay With Actual Expenses

Use burdened employee cost in the management analysis. The model's general US multiplier is 1.25 for payroll taxes, benefits, and insurance, with separate treatment for the owner. It excludes several other employment costs that the model carries elsewhere.

Don't add an estimated burden on top of the same employer costs already included in the report. Reconcile the actual payroll and related expenses to the allocation. Keep recruiting, training, software, and equipment visible in their appropriate groups instead of assuming a multiplier settles every employment cost.

Normalize the Owner Role Without Counting It Twice

Describe the owner's operating responsibilities and the cost of the work that remains after a sale. Use fair-market pay for those responsibilities in the earnings view, consistent with the model. The example's lower owner burden reflects its own assumptions, including the Social Security cap, rather than a rule that all payroll taxes disappear.

For an adjustment to actual owner compensation, show reported cost, the proposed replacement cost, and the difference. Keep the role description with that calculation. Don't subtract a full replacement role while also retaining an overlapping cost for exactly the same work without explaining the staffing assumption.

Verify the Recurring Entries Against Agreements

Reconcile recurring invoices with the agreements, quantities, and prices actually in force. Review canceled services, credits, changing seat counts, and one-time work that has been described as recurring. The service record and the billing record need to describe the same obligation.

Keep expected changes separate from current results. A proposed reprice, renewal, or unsigned upsell belongs in a forecast until the relevant arrangement is established and reflected on the proper basis. Show the evidence and timing behind the forecast rather than folding the hoped-for fee into historical earnings.

Leave Unpaid Onboarding in the Cost View

The model quotes onboarding and waives the fee, while allocating 60 hours of project-engineer work per new client. That cost remains in project labor despite the absence of onboarding revenue. Removing it because the invoice was free would omit work the business still performs.

In the US stable example, project labor including onboarding is $155,908 against project revenue of $290,769. The labor is $10,524 above the model's 50% project-revenue allowance. Keep that variance available to explain rather than making it disappear through classification.

Document Every Proposed Earnings Adjustment

Keep an adjustment schedule separate from the reported P&L. For each proposed change, record the amount, period, underlying entry, reason, and evidence for the continuing business assumption. Have the financial and transaction advisers review that schedule before presenting the adjusted figure.

An expense labeled owner-related or exceptional still needs an explanation. Identify whether the work or commitment actually ends, changes, or needs replacing. Leave a contested adjustment visibly contested instead of describing it as an agreed increase in profit.

Renaming the row is the cheapest part. The useful work is showing why the corresponding expense would change and which costs the business would continue to carry.

Preserve a Bridge From Reported to Adjusted Profit

Add the accepted proposed adjustments to reported earnings in a visible reconciliation, using the same period throughout. Keep reclassifications distinct from changes to total profit. A move from overhead to delivery reduces both those groups equally and leaves total EBITDA unchanged.

Use the model's stable totals as a check on that logic. Reported gross profit of $1,594,955 less $218,077 of sales and marketing and $646,602 of general and administrative cost equals $730,276 in EBITDA. A reclassification should still reconcile to that same total when no expense or revenue amount changes.

Give the finance owner responsibility for the version, source reports, adjustment explanations, and unresolved questions. Keep access to the working records controlled through the transaction process. Start with a closed period, reproduce its profit, and resolve the first difference another reviewer can't follow before extending the analysis.