Your books are probably fine.
Fine meaning: your bookkeeper closes the month, your CPA files the return on time, and the numbers are close enough that you know roughly what last year looked like. Nobody has ever complained.
Fine is the problem.
The first person who will read your financials with real intent is an analyst working for a buyer, not your accountant. Their job is to find every reason your number should be lower than you think it is. They are not hostile, just paid to be skeptical, and skepticism is cheap when the other side cannot answer questions quickly.
Financial hygiene gets filed under administration, somewhere below sales and hiring and the shoot that has to be delivered by noon. Filed wrong. It is the quietest form of leverage you will ever build, and one of the few things that raises your price without requiring you to sell a single additional job.
Buyers price what they can verify
Picture two agencies in the same market. Same revenue, same real earnings, same client mix, same quality of work.
The first can produce a monthly profit and loss statement going back three years, with revenue broken out by product line and by client, owner compensation shown at a market rate, and every personal expense identified individually. The second has a bookkeeping file where the truck, the family phone plan, a one-time legal fight, and the founder's health insurance all sit inside operating expenses, and revenue arrives as a single undifferentiated line.
Same business. Not the same price.
A buyer cannot pay for earnings they cannot verify. That is not a negotiating tactic, it is how the money works: the buyer is borrowing against or investing on the strength of those earnings, and their lenders and partners will ask the same questions they are asking you. Every number that requires a story to explain becomes a number they discount, and an add-back you cannot document never costs you only its face value. It costs you that amount multiplied, because everything in a valuation runs through the multiple.
The frustrating part is that this usually runs in your favor once the work is done. Most owners who have never been through a sale underestimate their own adjusted EBITDA, the earnings figure that actually drives agency valuations. Clean books do not shrink the number to a conservative version of reality. Most of the time they reveal that the business earns more than the owner thought.
The add-backs you can't document aren't add-backs
Adjusted EBITDA is earnings before interest, taxes, depreciation, and amortization, with four adjustments layered on top. Each one is legitimate. Each one has to survive contact with someone who does not know you.
Personal expenses run through the business. The vehicle, the phone plan, the travel that was two-thirds vacation, the family member on payroll who does not really work there. All of it is a genuine add-back, because a new owner would not incur those costs. But it has to be identified line by line, with dates and amounts. A lump sum labeled "owner discretionary" at the bottom of the schedule reads as a request, not evidence.
One-time costs that will not recur. A lawsuit, an office move, a failed executive hire, a software migration that ate two quarters. Each of these can come back out of the earnings picture, if you can show when it happened and explain credibly why it will not happen again. "Will not recur" is a claim. Dated documentation is proof.
Owner compensation normalized to market. This is the adjustment owners get wrong most often, and it moves in both directions. If you pay yourself far below what it would cost to hire someone to do your job, the difference comes out of earnings, not into them. If you pay yourself well above market, most of that gap is earnings the business genuinely produced. The honest question is what a capable general manager would cost in your market. Answer it before a buyer answers it for you.
Everything else that distorts the picture. Inventory write-offs, a bad debt year, a pandemic-era grant, a one-time bonus pool. Same rule applies.
An add-back you can document is earnings. An add-back you assert is an argument, and you will lose that argument, because the person across the table does this fifty times a year and you are doing it once in your life.