Entrepreneurs need their own team to navigate the sales process.
posted by: Brian Caldwell
Apr 1, 2019 7:10:15 AM
Definition of "good"
Every business broker will tell sellers that the 1st key to maximizing your business value is having “good” historical financial records. However, “good” is a subjective and relative term with fuzzy connotations. One seller’s good records may equal a buyer’s ugly perception. Regardless how detailed and accurate your records are, expect buyers and their lenders to want more. They have an insatiable appetite for more historical financials because in their mind, more “knowns” equals better decisions and less risk. If you can’t produce a requested report, at best it increases risk in their mind, and at worst, they question what you are trying to hide.
Don't be afraid to hire additional help
Many small business owners’ roles include chief cook and bottle washer and bookkeeping / accounting. Keeping the financial records is often at the low end of the priorities for the day with customer service, ordering, and generally keeping the doors open for business at the top. This system generally doesn’t have the robust reporting capacity that will build trust with a buyer to pay top dollar.
Have details to adjust for non-essential tax expenses
Additionally, the purpose of most businesses records is to minimize profits to reduce taxes. This is the opposite of what a buyer is looking for in justifying your listing price. Therefore, we need to adjust the profit and loss statements. In some businesses, this can be a daunting task to unravel the non-essential business expenses out of the statement. Fortunately, most buyers are aware of the tax savings that owning a business can provide and are understanding of these adjustments. Expect to be questioned and defend the adjustments, but in the end, most adjustments are accepted by the buyers. Some businesses have significant “green cash” in their revenue transactions. These businesses usually require additional proof of revenues with buyers. Unreported cash sales is illegal and should not be used in determining the value of the business.
Drum Roll Please...
So…if you are considering a sale in the next few years (and every business owner should be structured for a potential sale in the future!), here are 10 tips to improve your financial records.
What if you’re ready to sell now, but your books aren’t stellar?
Don’t worry, many businesses in the same situation are listed today and do sell. The trick is a close review of the financial reports you do have with our advisors so that we can develop a plan to generate the clearest accurate picture of your historic financial performance, and have time to develop reports for anticipated buyer requests. A little planning and effort at the front end prior to listing can reduce your stress and increase chances of a sale.