ADVISORY HIGHLIGHT
6 Ways to Clean Up Your Financials Before Considering a Business Sale
As a business owner , embarking on a business sale journey is a monumental decision that requires thoughtful consideration , planning and preparation . Before you begin the business sale process , one critical area to assess within your business is the state of your financial records . With good clean financials in place , sellers are favorably positioned to maximize their return , plus it will help ensure a smooth financial due diligence process during the transaction .
If a business sale is part of your future exit or growth plans , consider these key steps to help clean up your financials :
M & A SERIES
Ensure compliance with generally accepted accounting principles ( GAAP )
It ’ s important to either familiarize yourself with GAAP standards relevant to your industry or employ a reliable accounting / finance team with a strong financial background to help maintain compliance . Deals can get derailed if a sellers ’ books are not in order . It can also motivate a buyer to discount the purchase price if financials are not in compliance with GAAP and / or on an accrual basis .
Evaluate your team and get proper resources
Do you have the proper team and resources to get you to a month-end close with clean financials ? In some cases , small businesses will typically have a bookkeeper or third-party accountant close their books annually , and therefore , do not have good current or historical records to even be able to sell . To better position your financials prior to sale , consider hiring an interim CFO or controller with prior deal experience .
Use a reliable reporting tool / financial system
Consider a seller Quality of Earnings ( QoE ) as part of diligence
If your books are not maintained in a dependable accounting system ( i . e ., QuickBooks , Sage Intacct , etc .), take the time to get a system integrated that will help you produce polished financial statements . A strong accounting and financial system can also be a useful tool to help you better manage your business and make informed decisions to keep operations running smoothly .
Even if an annual review or audit is being completed , a QoE will help you not only understand the integrity of your own books and whether they will pass a buyer ’ s QoE , but it will also help you understand key customers , concentrations , financial ratios , working capital metrics and more . This information may help you fix or prioritize other items within your business to build value before going to market .
04 | VIEWPOINTS : ISSUE 2 2024