The Importance of Accurate Financials When Selling a Business

by David Hall 15th of June, 2023

The Importance of Accurate Financials When Selling a Business

Selling a business is a complex and challenging process. As a business owner, you have invested time, effort, and capital into building your business, and you want to ensure that you receive the best possible return on your investment. One of the critical factors that can impact the sale of your business is the accuracy of your financials.

Accurate financials are essential when selling a business. They provide potential buyers with a clear understanding of your company's financial health, profitability, and potential for growth. Having reliable financials can help you attract more buyers, negotiate a better deal and reduce the risk of litigation after the sale.

Conversations with Your Accountant

When preparing to sell your business, it's essential to have conversations with your accountant. Your accountant can help you ensure that your financials are accurate, up-to-date, and in compliance with applicable accounting standards. They can also help you identify areas where you can improve your financial performance and increase the value of your business.

Stock Levels

One critical aspect of accurate financials is the management of stock levels. Your stock levels impact your cash flow, profitability, and ability to meet customer demand. Having accurate records of your stock levels is essential when selling a business. It allows you to demonstrate the value of your stock, identify slow-moving items, and calculate your inventory turnover rate.

Plant and Equipment / Depreciation

Another critical area where accurate financials are essential is the management of plant and equipment. Your plant and equipment represent a significant investment, and it's important to track their depreciation accurately. Accurate depreciation records allow you to calculate the true value of your assets, identify areas where you can improve efficiency, and make informed decisions about asset replacement.

Work in Progress

Work in progress (WIP) is another area where accurate financials are crucial when selling a business. WIP represents the value of work that has been started but not yet completed. Accurate WIP records allow you to demonstrate the value of work in progress, identify bottlenecks in your production process, and forecast your future revenue.

Immediate Tax Write-Off

When selling a business, it's important to be aware of any immediate tax write-offs that may be available. Immediate tax write-offs can help you reduce your tax liability and increase the value of your business. Your accountant can help you identify any tax write-offs that may be available and help you maximize their benefit.

Provide Incentives To Hold Key Staff Essential To The Business

Your staffing arrangements can impact the value of your business. Having a stable and well-trained workforce is an asset when selling a business. Incentives, such as employee bonuses or profit-sharing arrangements, can help you attract and retain talented staff. These incentives can increase the value of your business by demonstrating the strength of your team and their commitment to the company's success.

Return on Investment and Multiples of Returns Paid for Varying Industries

Return on investment (ROI) and multiples of returns paid for varying industries are critical factors to consider when selling a business. These metrics allow you to demonstrate the value of your business compared to other companies in your industry. Your accountant can help you calculate your ROI and multiples of returns paid and use these metrics to set a realistic price for your business.

Add Backs to Normalise the Accounts

Add backs to normalise the accounts is a technique used to adjust the financial statements to reflect the true financial performance of the business. This technique can help you identify and adjust for any one-time or non-recurring expenses that may have impacted your financial results. Add backs allow you to present your business's financial performance accurately and improve your negotiating position when selling your business.

At LINK Business Brokers we offer a Free Business Appraisal to help with your decision to sell. If you are thinking of selling your business, please don’t hesitate to contact me today.

Tags: finance selling entrepreneurs