Due Diligence Ready: Building Financial Systems That Attract Premium Buyers (#266)

In this week’s episode of "Maximize Business Value," Nicole Rose Yen guest stars for a conversation with our host, Amy Morin! Listen in as they discuss the importance of strategic due diligence. You can follow Nicole on LinkedIn or reach her on her website: nicoleroseyen.com

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Podcast Chapters:
0:00 — Introduction
01:57 — Clean Books vs. Due Diligence Ready Books
05:20 — Structuring Your Chart of Accounts to Tell a Story
07:20 — Driving Value with EOS & Quarterly Planning
11:05 — Documenting Processes as Intellectual Property
15:45 — The #1 Tip for Building Business Value
17:53 — Outro

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Learn More about Dave Casey
Dave Casey is a seasoned business owner with deep expertise in all aspects of organizational behavior and a passion for helping entrepreneurs reap the full rewards of building their companies. He understands that a truly valuable business isn’t just profitable—it’s secure, scalable, and transferable. In addition to his work with Mastery Partners, Dave actively gives back to the entrepreneurial community through leadership roles with organizations like Business Navigators, Biz Owners Ed, and Liberty Ministry. Whether advising on strategic growth or mentoring the next generation of business leaders, Dave brings clarity, integrity, and decades of real-world experience to every interaction. His mission goes beyond exit planning—he’s committed to helping owners build lasting legacies.

Learn More about Nicole Rose Yen
Nicole Rose Yen is the CEO & Founder of NRY Advising, a bootstrapped firm delivering accounting clarity and strategic insight to scaling businesses. She’s captained NRY to year-over-year growth of 30–50%, offering both fractional advisory services and hybrid FTE roles that blend compliance precision with executive-level strategy. Known for her grit, creativity, and vision, Nicole is building toward a $15M roll-up that integrates finance, HR, and operations into a plug-and-play back office platform for ambitious businesses.

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Transcript

Tom Bronson (0s): Welcome to the Maximize Business Value Podcast, brought to you by masterypartners, where our mission is to equip business owners like you to maximize your business value and achieve the exit of your dreams, whatever that means to you. With insights gained from over a hundred business transactions, we share real world strategies, lessons, and expert advice to help you build long term sustainable value in your business.

Each episode is hosted by one of our Mastery certified partners, their seasoned experts who've helped countless business owners navigate the complexities of growth, scaling, and building value. They bring firsthand experience, actionable insights, and a passion for helping you build a business that thrives. So let's dive in

Amy Morin (1m 5s): And Welcome to the Maximize Business Value, a podcast for business leaders who are passionate about building long-term sustainable value in their business. Today I'm excited to introduce you to Nicole Ian, an owner founder of NRY Advising, which is a fractional CFO in controller form. Nicole, welcome to the podcast.

Nicole Rose Yen (1m 29s): Thank you. So glad to be here and talk to numbers. Yeah,

Amy Morin (1m 32s): I know you're such a number geek. It's so great. Nicole and I, for some of you in our audience, have been working together with some common clients, so it's been really fun. I've gotten to see what Nicole, as she does geek out on numbers, so it's great to have somebody like that sitting in your finance seat. So as we open up, so

Nicole Rose Yen (1m 51s): Great to see you bring up the bring structure to our enthusiasm and growth.

Amy Morin (1m 57s): Yeah. So as we start, you know, this is a podcast for business owners to really set them up for what an exit may look like, if that's the path that they wanna take. And so there's always a difference between clean books and books that are ready for sus, you know, sellers to take a look at. So what do you think the difference between clean books and due diligent financial ready books would look like?

Nicole Rose Yen (2m 25s): Yeah, so there's two parts to this. The first is that clean books can be accurate, but Due Diligence Ready books are provable. Any potential buyer is gonna want proof that what you've entered is correct, and that's another level of documentation. It's not hard if you get in front of it, but it is one of those things that if you know that it's on your radar, make sure you put in that little bit of extra effort in the beginning so that you can prove everything. So that's the first and probably easiest one to outline.

And I think you've seen this a lot, Amy, If you really want Due Diligence Ready books, the structure should support the story that you're telling in the sale. So whatever that is, whether it's profitability, scalability, really strong risk management, that should be structured in your chart of accounts and clear for anyone looking at it as well as provable that that is the case.

Amy Morin (3m 19s): Yeah. Where do you see some of the difficulties with just, you know, a million dollar company that has just a bookkeeper who's kind of grown with the organization or even a $3 million company, right? Where do they start kind of coming up against being able to have Due Diligence Ready books that aren't quite provable?

Nicole Rose Yen (3m 39s): Yeah, luckily tech has helped a lot in this. If you take a look at the tech stack, you are gonna find a bunch of apps. It's gonna depend on your industry as well, what that weakness may be. So what we see in construction is gonna be extremely different from professional services. But take a look at the tech stack. If you are having trouble with receipts as an example, text can do that for you. You can just email it in or take a picture or whatever, and it's all there so that you can show what that was. But I think understanding the financials at its core is the simplest and some ways hardest hurdle to overcome.

But really every business owner should make be making the investment in themselves to understand what story their financials are telling, whether they're wanting to sell or not. That's something that owners you often, if it's working, it's working perfect, I'll focus on other things. But again, whether you wanna sell or not, knowing the story of your business and what the numbers show, yeah. Is gonna be a huge advantage.

Amy Morin (4m 44s): Yeah, I see that oftentimes too, you know, the owner of the company really has just relied on somebody else for the numbers and doesn't totally understand the financial picture. And we, as Masterypartners exit planning advisors highly encourage and say it's necessary that you know your numbers, you sit down and you kind of at least have some sort of general financial acumen so you know what's going on in your company. Yeah. So, great. So on that same line, how would you structure your chart of accounts to tell a better story that a possible buyer would want to hear?

Nicole Rose Yen (5m 20s): Yeah, so there's a couple of things that I look for. Just in general, again, these Due Diligence things are DueDiligence because they are highly valuable, especially to someone who might not know the business. And as the owner, you may be functioning up here and having this stuff in place is really gonna help you understand what is or is not happening on the ground. So the simplest thing, if you sell multiple services or multiple products, understand the margins on each of those. Obviously we're gonna start the simplest, which is cost of goods sold versus expenses.

Yeah. The stuff that, the money that it costs to sell the thing versus the money that it, it costs to support the organization as a whole. But down to that product line, there are so many cases where I see strong products undersold because they don't know how profitable they are. And that's sort of being masked by weak products that should probably be called from the offering to focus on what you do really well. So again, potential buyers are going to be all over that. They're gonna wanna know how much it costs to make the thing or sell the service, as well as each service line.

What that looks like, If you say, oh, I have a custom product, that's fine, but certainly you can segment it into different buyer groups. So we sell a lot of custom services, obviously. Yeah. Every business is different, and yet we can classify it in different ways. Okay. This is mostly bookkeeping, this is mostly controllership, this is mostly CFO. And across the board I've seen businesses able to do that. So making sure that you understand the margins for each of the things that you sell, in addition to the gross margins.

Amy Morin (7m 1s): Yeah, yeah, great. Great advice there. For sure. That, and that tells a story all on its own right, that uncovers growth opportunities, right? When any business, any future buyer, potential buyer for a company wants to see where's the growth, and to be able to show that picture growth by product mix is in highly valuable. For sure. Yeah. So as I mentioned when we first started, you and I have some mutual EOS clients together. You sit in the finance seat and it's been super fun to work with you.

So I love being able to have guests on the podcast that I can talk EOS with. And for those of you listening to the podcast, if you don't, aren't familiar with EOS, it stands for the Entrepreneurial Operating System. And it's a way of structuring and operating your company, your company. Can you give us an example? We've done, again, some annual planning together, and typically do quarterlies together provide an example of how the EOS quarterly planning actually increases business value from your perspective.

Nicole Rose Yen (8m 6s): For me, it increases value in a lot of different ways. The first one and the simplest is key person risk. If you have a key person risk, you're an owner, let's say. Or even If you have someone operating, one person operating, they will either on the sale, contractually make you continue to work as an employee in more of an earnout type type of model. Or there will be contingencies on that person staying and there will be discounts for that, discounts in the valuation. So by involving the leadership team and including them in the accountability, you are already creating a more resilient and forceful organization.

So that I think is the absolute simplest and easiest thing about the quarterly. Now let's talk numbers. When we make ourselves put something down, we have to be accountable for that. And it's not always gonna hit. That in and of itself is so valuable to a purchaser because you as the owner, you already know what's worked and doesn't work. That's all in here. Again, by reducing the key person risk, but also documenting, okay, this is what works, this is what doesn't, this is what our goals are.

Are they aligned? That's another thing. Sometimes you person over here is going along on a goal that really has nothing to do with the one year or five year trajectories, right? They're just going quarter by to quarter whack-a-mole. So I think bringing all of that force together to create a more resilient, clear organization that's achieving the top objectives, instead of just setting their own individual objectives is gonna give you a much stronger valuation, not only from the perspective of key person and documentation of what worked and what didn't, but also that you're gonna be so much more profitable because everyone is actually working on the same thing.

That's

Amy Morin (9m 56s): Right. Yeah. It's an aligned force going to To the same goal. Yeah. With, you know, the statistic out there is that there's basically, you know, one in 10, one in 12, somewhere around that number, a business will sell and there's about $14 trillion worth of wealth wrapped up in businesses. It's getting ready to transfer in the next eight to 10, excuse me, eight to 10 years. And so with that kind of conversion rate, so to speak, right?

We wanna make sure that the things that we're working on in our business are lined. You know, the, the whole entire leadership com team is aligned around that goal for sure. And having said that, having a leadership team in a company that's transferrable is incredibly attractive to a buyer. You know, it is very difficult to sell a business that is solely dependent upon the buyer, excuse me, the seller. Particularly if the seller sits in a sales seat, you know, what happens to the sales when the seller goes?

So, yeah. Yeah. From your perspective, what have you seen about documenting processes in a way that survives Due Diligence? Because, you know, that process component really speaks to the, the structural component and intangible asset, right? There's this intangible capitals in our company and the process component is really, really strong in strengthening those intangible capitals. So what have you seen related to that?

Nicole Rose Yen (11m 34s): Yeah, I think when we, when we consider SOPs, it's like, ugh, tech box. Like I don't wanna do that, but what I consider it is really more intellectual property, and that's something that's really undervalued. So you either have two opportunities on your hand, one, people are doing it differently if they're doing it differently because there's not a standard operating procedure. And I think when we look at EEO s, they outline it really well. We don't need a click by click. This is everything that you do.

Apps change, clients change. What we're looking for is if someone from that field, whatever it is, the role is of that same level, could come in and do that process. That's the level that we're looking for. Yeah. So I know people get a little overwhelmed 'cause they're like, oh, I have to generate a SOP binder that's this thick, no, it's nothing like that. It's just, again, the resilience that if someone were to leave, you have the documentation necessary to have someone step in that's on the resilience side, but also cross training that person could get sick.

We have no guarantees. So I think that's the first thing that if you don't have that, how do you know that everyone's not doing the, doing it the same way? And that is another business risk because again, at the, at the best case scenario, you are under utilizing people because it's very unlikely that everyone is doing that the most optimized way. So again, that's more profit to be unlocked for you. And then again, people don't consider intellectual property at all. And that is a huge bonus that can give you a huge bump.

And you can speak to this more in terms of the valuation, if you have some really slick processes. I've seen businesses purchase really just for that because they treat it like intellectual property and give it a maintenance and care that they would a piece of equipment Yeah. At it has that value. Except the intellectual property doesn't necessarily decrease in value. It can actually just increase and increase as you continue to adapt it.

Amy Morin (13m 38s): Yeah, for sure. Yeah, I mean, we say that 80% of the value of most companies lie in the four intangible capitals. And intellectual property sits in one of those. And those four intangible capitals are the human capital of a company, right? Hey, we're all, we've got a great culture and people love coming to work every day, and we love working with the people that we are. Let's not discount that, you know, there's that structural capital that I talked about, which is processes and the accountability chart of our organization. How are we structured? Who's doing what? Who's accountable for what?

What roles do they play in helping us increase the value and actually deliver the best service to our clients? You know, we've got a customer capital, how well do we take care of our customer and our clients? And are they, do they keep coming back? What's our net promoter score? You know, all of those things really do affect the value of a company that you don't see on a, a balance sheet, right? Or a profit and loss statement. You see, you'll see absolutely a little bit of goodwill and stuff on a, on a balance sheet sometimes.

But, and then that fourth intangible capital is the social capital and the VTO speaks to that quite a bit. VTO for those, again, who are unfamiliar with EOS stands for the vision Traction organizer. And it's eight questions to help the leadership team get aligned on the vision, the future vision of the company, and how they're gonna get there. So, great, great stuff.

Nicole Rose Yen (15m 3s): I do wanna add in just a little plug please. The client experience and the standard operating procedures. I see a lot of organizations who just through maturity, have a very senior level of staff. And when a buyer comes in, they're gonna, there are a lot of cases they're gonna wanna scale. If there's not standard operating procedures in place regarding the client experience, then that's gonna be either very expensive or very difficult, or both. It could be both. So again, putting some of the standard operating procedures in so that they could expand the team, even if that's not where you are interested in going Yeah.

Has tremendous value, again, on those intangible assets. Yeah.

Amy Morin (15m 45s): Yeah. That's great. Great advice. Thank you. So we'd like to wrap up with one final question for our, that we ask every single guest on our show. And that is, what's the one most important thing that you recommend business owners do to build value in their business?

Nicole Rose Yen (16m 8s): Pick something important and measure it consistently?

Amy Morin (16m 11s): Hmm.

Nicole Rose Yen (16m 11s): I think that's, that's the biggest thing that I see, and I see it in both directions. Either people are data holics, and so they're going from one KPI to the next, to the next, to the next to the next. And tracking the cumulative effect of any one effort becomes very challenging because you haven't measured the same thing, you know, over a consistent period of time. And then on the flip side, I see owners who are probably pretty ready to sell three years ago. So they've really taken a back seat and are pretty shocked by the time they go to sell that the way that they were doing it has not held without them at the helm.

So if you are feeling even a little bit burnt out, I would really, really push you to contact Amy and and figure out what that takes, because it takes time to sell. And again, having a good control over those KPIs and understanding of what's gonna give you a good value will help you stay strong all the way to the end.

Amy Morin (17m 12s): Yeah, that's great. This podcast is not about the scorecard. However, I've been teaching a lot about the scorecard lately, and so many companies use it just to kind of fill in the blanks, if that, if that makes any sense, right? They're just filling in the boxes each week, yet they're not using it as what I call a crystal ball to help them predict the future. And so that's that KPIs, you know, they, they're don't just kind of look at them, right? Use them as in intelligence to help you predict where you're going.

So great. Nicole, it's been so fun. Thank you for sharing all your insights with us. Incredible experience. Thank you. Where can people find you?

Nicole Rose Yen (17m 53s): Yeah, you can find me@nicoleroseyen.com or n yen@nicolerosey.com. I'd love to hear from you. Alright.

Amy Morin (18m 0s): All right, perfect. You're on LinkedIn as well, right?

Nicole Rose Yen (18m 3s): I'm on LinkedIn as well. Nicole Rose Yen I, I believe there's only one of me. So

Amy Morin (18m 9s): You're the best though. There's one and it's the best. So great. Well, this is a maximize business value podcast where we give practical advice to business owners on how to build long term sustainable value in your business. Please be sure to tune in each week and subscribe to our channel so you won't miss a single episode. And we'll see you next week. Thanks, Nicole.

Tom Bronson (18m 35s): Thanks for joining us for another episode of the Maximize Business Value Podcast. I hope today's conversation sparked new ideas on how you can continue driving value in your business. But remember, it's not just about listening, it's about taking massive action. Visit our website masterypartners dot com for more resources. Grab a copy of any of the books in the Maximize Business Value series on Amazon or via the links below, and don't hesitate to reach out If you want to know how to apply these concepts to your business.

So until next time, I'm Tom Bronson reminding you to relentlessly execute while you Maximize Business Value.