Want to sell your business? This is how to prepare

In our experience the majority of business owners are inadequately prepared when the time to sell their business and transfer ownership. But, the way to ensure that the business owner maximizes the value of their business and minimize the objections raised by a potential buyer is to have squeaky-clean financials.

When a potential buyer becomes interested in your business, their first port of call is to examine your financials. This is an opportunity for you the business owner to create a favorable impression and set the tone for the buyer’s whole experience in dealing with you as the seller.

An astute buyer will often have a cadre of professional advisor’s, the most notable in the early stages of discussions with the seller, is his accountant. Any CPA worth his salt will scrutinize your financial statements, with particular attention being paid to the balance sheet.

Many business owners we encounter, pay scant attention to their balance sheet, let alone are aware of its importance at the time of the business sale. So, a few words about the balance sheet are appropriate. A balance sheet is snapshot in time of a businesses financial condition, usually at the close of an accounting period such as a month, quarter or year. A balance sheet comprises assets, liabilities, and owners or stockholders equity. Balance sheets, in conjunction with income statements, are the most important records in a businesses financial reporting system, and required by law in many countries. In addition, well-kept financials are essential in helping to determine the value of the business.

Another area that is particularly vexing for buyers is inventory. This is another balance sheet item and can be a stumbling block for the owner to sell his business, especially in a manufacturing business with large and diverse inventories of parts, especially if the inventory records are not accurate and kept up to date.  Yes, conducting a regular inventory can be burdensome, tedious, and expensive, but will pay dividends during the due diligence phase to minimize the effort required and allay the concerns of the buyer, especially if it’s a corporation. It’s hard enough to navigate this area if the inventory is all accounted for and in good order, it is virtually impossible to reach an agreement with the buyer and his team if the reverse is true.

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