When you are early in a search fund journey, conversations with potential sellers can feel straightforward until financials enter the discussion. One of the first realities searchers encounter is just how much accounting systems can vary from company to company.
Understanding the accounting systems sellers use, and what those systems actually signal, helps searchers ask better questions, move through diligence more efficiently, and avoid overreacting to issues that are often fixable post-close.
This article walks through the most common accounting setups you are likely to encounter, how to interpret them, and what they mean for diligence and ownership transition.
Why accounting systems matter in a search fund acquisition
A seller’s accounting system influences more than the format of financial statements. It affects how quickly due diligence can move, how reliable historical numbers are, and how much work will be required after closing to stabilize reporting.
At the same time, imperfect accounting systems are extremely common in founder-owned businesses. Especially earlier in a search, the goal is not to determine whether a system is best in class. The goal is to understand whether the financial data is consistent, explainable, and capable of improvement once ownership changes.
Common accounting systems
Businesses use a range of accounting systems, often shaped by the company’s age, ownership structure, and reliance on external advisors. As a searcher, you’ll most commonly see:
- QuickBooks (online or desktop)
- Other cloud-based platforms like Xero, Sage, Acumatica, or NetSuite
- Heavy Microsoft Excel usage
- Fully outsourced bookkeeping with no internal system
- Separate billing platforms that don’t cleanly integrate with the general ledger
Each setup has implications — but none should automatically disqualify a deal.
QuickBooks: The most popular accounting system sellers use
QuickBooks remains the dominant small business accounting platform. Sellers may be using either QuickBooks Online or QuickBooks Desktop, and from a diligence perspective, both are workable.
QuickBooks Online often signals easier access and collaboration. Because it's cloud-based, it is commonly used alongside outsourced bookkeepers and allows multiple parties to review financials simultaneously. However, searchers frequently see overly complex charts of accounts, inconsistent categorization, or unclear user permissions. These issues are usually correctable, but they are worth understanding early.
QuickBooks Desktop tends to appear in businesses with long-tenured ownership or limited system changes over time. Desktop can function well, but it often introduces diligence friction because of limited user access, local file storage, or outdated versions. The key question is not whether Desktop is inherently problematic, but whether the seller can provide timely and consistent financial information.
Regardless of the version, searchers should focus on who maintains the books, how often they are closed, and who reviews financials before they are shared.
In addition to QuickBooks, searchers may encounter systems such as Xero, Sage, Acumatica, or NetSuite. These platforms are typically cloud-based and serve the same core purpose as QuickBooks: tracking the general ledger, cash, and financial reporting. The main differences are in how robust the reporting is and how well the system scales, rather than in what it is designed to do. From a diligence perspective, the questions around access, data quality, and consistency are largely the same.
When Excel is the accounting system
Some sellers rely heavily on Excel rather than a formal general ledger. This often shows up as revenue tracked in spreadsheets, cash monitored manually, or expenses summarized outside an accounting platform.
Excel-based accounting increases the risk of errors and limits transparency, but it is not uncommon in smaller or service-oriented businesses. For search fund diligence, focus on whether the numbers reconcile across sources and whether the seller can clearly explain their financials. A reliance on Excel is more concerning when explanations are unclear or calculations change month to month.
Fully outsourced accounting with no internal system
In some cases, sellers have no internal accounting system at all. Everything is handled by an external bookkeeper or CPA firm. Financial statements may be produced monthly or quarterly, and the seller may have limited direct interaction with the underlying data.
This setup can actually be a positive if the books are current and the service provider is responsive. The main diligence risks relate to access and timing. Searchers should understand who controls system access, how quickly information can be provided, and whether the provider is willing to support diligence and post-close transition.
Separate billing platforms and the general ledger
Many businesses use separate systems for billing, invoicing, point of sale, or industry-specific revenue tracking. But the presence of a billing platform does not usually mean the seller lacks an accounting system. In most cases, the seller is using both.
A common setup includes using a billing platform or Excel-based to generate invoices and track customer activity, and using an accounting system to manage cash, record transactions, and support tax reporting. The diligence challenge is understanding how these systems relate to one another and how information flows between them.
Reported revenue in operational systems often differs from accounting financials because of timing issues or manual reconciliations. These gaps are usually fixable, but they require careful diligence to ensure revenue is complete and accurately reflected. Searchers should expect reconciliation work and focus on whether processes are consistent and documented.
How searchers should interpret what they find
Accounting systems are rarely perfect, but they are informative. Rather than focusing on polish, searchers should prioritize consistency over time, clear ownership of the books, and the seller’s ability to explain the numbers with confidence.
When systems are fragmented or unclear, involving accounting advisors earlier can help separate normal small-business limitations from true financial risk. This approach reduces surprises later in diligence and supports more productive conversations with sellers.
What accounting transitions typically look like after close
For most search fund acquisitions, meaningful accounting system changes occur after closing rather than before. Common post-close priorities include standardizing the chart of accounts, improving the monthly close process, integrating billing systems with the general ledger, and bringing accounting functions in house or upgrading platforms.
Understanding the seller’s starting point allows searchers to set realistic expectations and plan a smoother transition during the first several months of ownership.
Key takeaways
The accounting systems sellers use vary widely, and that variation is normal in the lower middle market. Imperfect systems rarely derail good deals on their own. The most important factors are reliability, transparency, and the ability to improve reporting over time.
When interpreted correctly, accounting systems provide insight rather than alarm. For search fund searchers, that understanding is a meaningful advantage throughout diligence and into ownership.
Learn more about Mowery & Schoenfeld's accounting services for search funds