Post-acquisition financial transition for search fund and SBA buyers

The post-close package has four parts. The opening balance sheet is posted from the closing statement and the purchase price allocation provided by the buyer's advisors, with each acquired account tied to a line in the closing documents. Monthly close then starts with the first full month: bank and card reconciliations, accounts payable and receivable, payroll entries, accruals and financial statements. Covenant reporting follows the loan agreement's own definitions, with a calculation worksheet that shows each input and where it came from. Finally, a working capital tracker compares each month's net working capital against the target in the purchase agreement, so any true-up conversation starts with numbers.

Where the buyer's QoE firm wants help before closing, we prepare the databook under that firm's direction: monthly revenue and cost by category, a proposed add-back list with supporting documents, and working capital by month. The QoE firm decides what goes in its report.

We start with the closing set: the purchase agreement, funds flow memo, closing statement and any seller note terms. The first deliverable is the opening balance sheet, which should agree to the closing statement and the allocation schedule the buyer's advisors provide. For asset purchases, that schedule normally also feeds the allocation reported on IRS Form 8594, which the buyer's tax preparer signs.

The second step is taking over the books. The buyer moves bank and payment access to the new entity and gives us read-only feeds; we set up the chart of accounts, load the seller's historical financials for reference, and agree a close calendar. The third step is the first three closes, which are slower because they include cleaning up whatever the seller left: unreconciled accounts, unrecorded accruals and customer deposits that were treated as revenue. By the fourth month the close runs on the normal calendar. Throughout, we deliver the lender package to the buyer ahead of the date the loan agreement requires, with the covenant worksheet attached; the borrower signs and sends it.

The buyers we write this for are search fund principals and independent sponsors buying a business with a few million dollars of EBITDA or less, and individual buyers using an SBA 7(a) loan to acquire a small business. SBA lenders set their own reporting requirements within SBA's program rules, and the loan agreement is the document we work from. The work is also useful to acquisition-minded operators who are buying a second or third location and want the same close process in every business.

It is not a fit for a buyer who wants someone to issue a quality of earnings report, to value the business, to arrange financing, or to act as the lender's compliance contact. Those belong with a QoE firm, a valuation specialist, a broker or lender, and counsel.

The first is an opening balance sheet that does not agree to the closing statement, so the first set of financials cannot be reconciled to the deal. The second is working capital that the model assumed was normal and the first month shows is not, because of timing in payables, customer deposits or seasonality. The third is a covenant defined in the loan agreement one way and measured another way, for instance EBITDA with add-backs the lender never accepted. The fourth is a seller's bookkeeper who stops answering the week after closing. The fifth is a QoE firm that asks for monthly data in a layout the books were never built to produce.

Most acquired small businesses run on QuickBooks Online or Desktop. We typically stay there for the first year and move to NetSuite or Sage Intacct only when the business or the group outgrows it. The QoE databook is built in Excel from exports out of the seller's accounting file, payroll system and bank statements, in a layout the buyer's QoE firm approves. Covenant calculations live in a locked workbook with a version history, so a lender question six months later can be answered from the same file.

Monthly close and reporting is scoped like our other reporting services, by transaction volume, number of entities and level of review. Covenant reporting and the working capital tracker are added to that scope. The databook subcontract is a fixed scope agreed with the QoE firm or buyer up front, in writing, before any work starts. Current tiers are published on the pricing page. We do not price against a percentage of the deal.

The test for post-close finance is whether the first set of financials ties back to the deal. Before the first close is delivered, we check that the opening balance sheet agrees to the closing statement and allocation, that each loan covenant calculation reproduces from the ledger, and that working capital agrees to the definition in the purchase agreement. For the databook, the standard is that every monthly number traces to a ledger account or a source document, and every proposed add-back has a document behind it. The QoE firm and the buyer decide what to rely on.

We can begin the week the closing documents arrive. The opening balance sheet usually takes a few business days once the allocation is in hand, and the first full-month close follows on the agreed calendar. A pre-close databook subcontract should be booked as soon as the QoE firm is engaged, since the monthly data request is the longest lead-time item. See our lender covenant reporting and M&A due diligence support pages for the related scopes.