The Multi Million Question: Why Audited Financials Are Your Best M&A Investment

How three years of clean audits can add 10–20% to your exit valuation—and when they matter most

After guiding Fullstack Academy through two successful exits—to Zovio in 2019 and Simplilearn (a Blackstone portfolio company) in 2022—I learned a critical lesson that many founders overlook:

The credibility of your financial statements directly impacts your exit valuation—often by millions of dollars.

The question I hear constantly:
"Do we really need audited financials, or can we get away with reviewed statements?"

My answer: It depends on your revenue, your buyer, and how much money you’re willing to leave on the table.

The Data Tells a Compelling Story

Recent analysis of hundreds of middle-market M&A transactions shows:

✅ Companies with several years of audited financials achieve 10–20% higher valuations
❌ Companies without audits face longer due diligence, lower buyer confidence, and restricted institutional access

For example:

• A $30M revenue company with $5M EBITDA selling at 6x could see a $3–6M difference.
• Total audit investment over three years? $150–450K.
• That’s an ROI of 10–20x — far exceeding the upfront cost.

But the “audit premium” isn’t uniform. It varies by revenue scale, operational quality, and buyer type.

1️⃣ Revenue Scale Changes the Rules

• $10–50M companies: Audits provide meaningful advantages (5–15% uplift), but context matters. Strategic buyers may discount the premium, while private equity often treats audits as baseline requirements.
• $50–100M companies: Audited financials are table stakes. Institutional buyers expect three-year histories, lenders require them for leverage, and R&W insurers heavily discount coverage without them.

2️⃣ Operational Excellence Matters More Than Audit Status

Audits verify value; they don’t create it.

• A high-growth SaaS company with 40% revenue growth and strong unit economics can command 15–20x EBITDA, even with reviewed statements.
• Conversely, a struggling services firm with pristine audits may struggle to get 5x EBITDA.

Hierarchy of value drivers:

1. Recurring revenue quality (largest impact)
2. Customer concentration (high concentration = discount)
3. Growth trajectory & margin structure
4. Financial statement credibility

Audits confirm value buyers can trust—they don’t manufacture it.

3️⃣ Buyer Type Determines Requirements

Buyer expectations shape your audit strategy:

• Private equity buyers: Require audited financials for platform acquisitions. Non-negotiable at $20M+ enterprise value.
• Strategic corporate buyers: Often flexible if they trust their own diligence.
• Individual buyers: May accept Quality of Earnings reports instead.
• Lenders: Require audits (or expensive third-party QoE) for leveraged buyouts.
  

5 Ways Audits Increase Your Valuation

Based on dozens of middle-market transactions, audited financials improve exit outcomes in five ways:

1. Risk Premium Compression (5–15% impact)
   Buyers assume worst-case scenarios with unaudited statements. Independent verification reduces perceived risk.
2. Better Financing Terms (5–10% impact)
   Lenders offer higher leverage multiples (e.g., 4.0x vs. 3.0x EBITDA), allowing buyers to pay more upfront.
3. Faster Deal Timelines (25–40% acceleration)
   Due diligence shrinks from 8–10 months to 6–7 months, reducing opportunities for renegotiation or re-trades.
4. Lower Insurance Costs (30–40% reduction)
   Audited companies secure better R&W coverage at lower premiums, reducing contingency holds.
5. Broader Buyer Access + Better Deal Structure
   Institutional buyers often eliminate unaudited targets during initial screening. Clean audits enable “zero-liability” closings with full proceeds.

When Audits Matter Less

Some companies can safely delay audits or rely on alternatives:

• High-growth startups burning cash: Focus on growth until profitability; audits are secondary until 18–24 months before exit.
• Simple businesses with strategic buyers: Quality of Earnings reports may suffice.
• Owner-operator succession: Internal buyers may accept reviewed financials if performance is clear.

The Big 4 Myth

Regional firms (BDO, RSM, Grant Thornton) or local CPA firms provide:

• 40–60% cost reduction
• Greater partner attention
• Equal buyer acceptance

Big 4 only adds incremental value for IPOs, international deals, or buyers who specifically mandate them.a

Our 24–36 Month Exit Preparation Framework

At Kyro CFO, we systematically prepare companies to maximize exit value:

Years 3–4: Build the foundation

• Diversify top client concentration (<15%)
• Strengthen management depth
• Clean up balance sheet irregularities
• Begin first audit to identify issues

Years 2–3: Optimize operations

• Document processes and reduce owner dependency
• Improve margins through pricing optimization
• Complete second audit showing improvement trends
• Begin normalized EBITDA analysis

Year 1: Maximize credibility

• Complete third audit with consistent history
• Commission Quality of Earnings report
• Prepare comprehensive data room
• Engage investment banker

During Transaction: Execute flawlessly

• Leverage audit credibility to accelerate diligence
• Negotiate favorable insurance terms
• Minimize escrows
• Close with maximum cash at closing
  

Two Critical Mistakes to Avoid

1. Waiting Until You’re “Ready to Sell”
   Six months of preparation is too late. Buyers want three-year track records.
2. Auditing Mediocre Performance
   Audits verify what exists—they don’t fix problems. Improve operations first, then audit.
   

Why This Matters Now

Market conditions in 2025 have made middle-market M&A more selective:

• Transaction volumes down 40%
• Buyer scrutiny increased
• Deals re-traded more often

In this environment, credible audited financials are currency:

• 30–50% less buyer pushback
• Faster due diligence
• Stronger negotiating leverage
  

Bottom Line

For companies in the $10–100M revenue range planning an exit in 3–5 years, audited financials offer one of the highest-return preparation investments available.



Not because audits create value—but because they credibly verify value you’ve already built.

About the Author

Nelis Parts is CEO of Kyro CFO, providing fractional CFO services to growth companies preparing for major transitions. Previously, as CFO & CEO of Fullstack Academy, he completed two exits (Zovio 2019, Simplilearn/Blackstone 2022), tripled revenue, and grew the team from 50 to 300+ employees. He specializes in exit preparation, M&A advisory, and data-driven financial strategy.

Ready to maximize your exit valuation? Schedule a complimentary consultation to assess whether audited financials make strategic sense for your business timeline and goals.