What buyers check in the numbers first
Expecting a review, most owners prepare the profit. What gets examined first is something else.
The idea that a buyer looks at profit first is intuitive and wrong. Profit is in the accounts and read within an hour. What takes longer and shapes the negotiation is whether the figures can be trusted across several years.
Consistency before level
Three years on the same basis, with the same definitions and no quiet reclassifications, say more than one strong final year. Where account logic, revenue recognition or cost allocation shift midway, review effort appears — and review effort is the currency in which due diligence becomes expensive.
Working capital tells the truth
The second look goes to how long money stays tied up in the business. Deloof showed in the Journal of Business Finance & Accounting in 2003, across more than a thousand firms, that a shorter cash conversion cycle is systematically associated with higher profitability. Jaworski and Czerwonka confirmed the finding in a 2024 meta-study spanning numerous international investigations.
For preparation that means: payment terms, dunning and prepayments are not administrative topics but valuation topics. And unlike much else, they can be changed within a few months.
The point where the person appears
By the third look at the latest, every review arrives at how much of the result hangs on individuals — on client relationships, on pricing, on commitments written down nowhere. That is the transition from financial review to the dependency question, and it arrives reliably.
What we deliberately do not claim
Damodaran cites Pratt’s suggested 10 to 25 per cent for private companies, largely at the appraiser’s discretion. It does not establish a standard discount for your business.