The importance of properly prepared accounts when selling your business

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The importance of properly prepared accounts when selling your business

Prior to the sale, it’s essential to have all your accounts in order, including cash flow, to provide agents with a clear and concise picture of your business.

It’s important to have properly prepared accounts when selling your business, there are several crucial factors to consider.

One of the key aspects we’ll delve into is the significance of having your financial records up to date and transparent for potential buyers. This plays a vital role in achieving the best exit strategy for you and obtaining the best possible deal for your company.

Prior to the sale, it’s essential to have all your accounts in order, including cash flow, to provide agents with a clear and concise picture of your business. The financial health of your company is a critical element that prospective buyers consider, and your financial statements and accounting reports offer valuable insights in this regard. Moreover, your financial history significantly influences the determination of your business’s value during this phase.

What is a business valuation and what documents are required?

To fairly assess the value of your business, a consultation is necessary to calculate its worth. Once a price is confirmed, you’ll have the opportunity to set the level of flexibility in negotiating a sale price. Several documents are required to conduct the valuation, including three years’ worth of company accounts consisting of the balance sheet, outlining the company’s assets, liabilities, and shareholder’s equity at a specific time. Additionally, a profit and loss statement is needed to measure the net income or profit by listing the income and expenses over a fixed term.

Finally, the cash flow statement calculates how well the business generates cash to cover operating expenses, investments, and debts. Ensuring these documents are up to date and easy to understand is crucial for maximising the exit value and presenting an honest picture to interested parties. Business valuations are influenced by the sale price of comparable companies, and providing key accounting records helps to position your business against your competitors.

The importance of properly prepared accounts when selling your business

The importance of honesty when selling your business

Even if your business isn’t performing as well as expected or is facing challenges in recovery, maintaining complete transparency with your financial records is crucial for honest conversations with potential investors, particularly if these factors contribute to your decision to sell. This transparency doesn’t necessarily mean your chances of selling are slim; in fact, it can foster productive discussions where prospective buyers can assess what they can do to improve the business.

The more information you provide, the better, as it allows interested parties to make informed decisions, increasing your chances of finding a suitable buyer. While it’s natural to want to present your business in the best light, occasional declines in sales are expected, and it’s critical for your accounting reports to reflect this accurately. Misleading information can lead to deal-breaking situations during the due diligence stage, where the legitimacy of provided information is thoroughly examined, uncovering any hidden issues.

By keeping your financial documents in good order and readily available, you can reduce due diligence queries and ensure a smooth sale process, instilling trust in the buyer. On the other hand, weak and inadequate records may discourage buyers, prolong the sales procedure, and ultimately lower the value of your business.

The vital role of your accounting reports to support your assertions

Having your accounts prepared when selling your business also provides sufficient evidence to support periods of high performance, especially if such performance wasn’t initially anticipated. If a buyer questions such exceptional performance due to circumstances like the Coronavirus pandemic, having solid numbers to back it up instils confidence in the potential buyer. In today’s fast-paced and volatile business market, this level of transparency and preparation builds trust with potential buyers and ensures you secure the best possible deal for your business. By offering comprehensive and concise financial records, potential buyers can get a clear and accurate account of your financial history, including future projections. This empowers them to make informed decisions about what they can offer when acquiring your business.

In conclusion

Having your accounts well-prepared and transparent is of paramount importance when selling your business. By ensuring your financial records are up to date and accurate, you pave the way for a successful exit strategy and increase your chances of securing the best possible deal. Through comprehensive business valuations and honest communication with potential buyers, you can build trust, instill confidence, and demonstrate the true value of your business. Moreover, providing solid accounting reports to support claims of high performance reinforces your business’s strengths and positions it favorably in the competitive market. Ultimately, a well-prepared financial foundation not only streamlines the sales process but also enhances the credibility and desirability of your business, leading to a successful and rewarding sale transaction.

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