As you start to receive interest in your business, potential buyers will be looking to examine your financial documents to ensure that your business is worth the investment. If you’re running the business yourself it can be hard to find the time to prepare these figures. But it’s vital that you have the financial records that demonstrate that the business is performing at the level that you have advertised.
Additionally preparing your financial documents is essential if you want to avoid a lengthy due diligence period. Having your financial documents prepared in advance will also earn trust with potential buyers and demonstrate that you have nothing to hide when it comes to the performance of your business. Here are the 5 key financial figures you should be looking to prepare for your business sale.
1. Balance sheet
You balance sheet provided interested parties with a snap shot of the current assets, capital and what the business owes at a particular point in time. For this reason the balance sheet is often referred to as the statement of financial position.
2. Profit & loss
Businesses are typically run to make a profit and this will be key consideration for any potential buyer. The Profit & Loss (P&L) statement measures your company’s sales and expenses during a particular period of time.
Depending on the type of business, turnover and weekly takings will play some role in the valuation of your business. A retail business, for example, is often valued based on a multiplication of the weekly takings.
4. Net profit & adjusted profit
Your company’s adjusted net profit is essentially the profit that is available to the buyer of the business minus expenses that are non-essential, one-off or are tied to your ownership. An example of this would be the cost of a company car used by the current owner – this expense would be added back to the net profit.
5. Value of the assets
Assets are often the tangible stock, equipment, fixtures and fittings that can be valued using the original purchase price of each item minus depreciation. There are exceptions to this, as some assets such as property might have increased in value. Your accountant will be able to advise you on how to account for you assets with the depreciation of each item and how this should be presented to a buyer.
A smooth sale
By preparing all of these items in advance or as soon as you put your business on the market, you will ensure a faster sale. The information will help a potential buyers make a faster decision on whether your business matches their requirements. This will ensure that you avoid lengthy due diligence.