Bennett & Associates Blog

Preparing your Financials to Sell Your Business

You have built a business and you have decided to sell it at some point in the future.  Ideally, you are thinking ahead a few years.  Tactical planning now can help insure that you will maximize the selling price when the time comes.  There are several tactical financial decisions to make prior to attempting to sell the business.

My number one recommendation is to report all income so that you can maximize your bottom line.  Sellers generally will request 3 years of financial history in order to estimate the value of the business.  If you are not reporting all the income or stealing from your company, stop that practice and start reporting every penny.  This is important because every dollar on the bottom line gets multiplied 2 to 5 times to calculate the sales price and monies that cannot be accounted for, will not be used in this calculation.

Next, if you do not have a good accounting program, get one.  Begin keeping your books according to standard accounting practices.  Sellers want to see a clean set of financials.  Keep in mind that sellers have accountants, bankers and lawyers advising them on the purchase and they don't like to have to ask a lot of questions or get a lot of explanations.  They want to look at the books and see that they are without a lot of discretionary spending.

And last, it is a good idea to begin to pay off debt.  A debt free company is very appealing to a seller and their advisors.  Debt is usually a necessary way of conducting business, but it is very impressive to show a debt free business to a prospective seller.  A debt free business shows that the business is less risky and the lack of risk helps command a premium selling price.