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Selling Your Business? Make Sure You’ve Maintained Accurate Financial Records!

Mike Lanni, CPA
May 3, 2022
You’ve worked hard to build up an impressive business. If you’re preparing to move onto something new or head into retirement, you have a few options for an exit strategy. If selling the business is your preferred route, you can do this privately or through a business broker.

Either way, the buyer will want to see tax returns for the past three to five years, and financial statements going back at least five years. These show buyers the company’s revenue trends, and enable them to assess the company’s profitability. Therefore, the importance of maintaining accurate, complete financial records cannot be overstated in a business sale. 

When the business owner does not keep accurate records or show all income that the owner is making, the buyer does not see that income potential and the business owner could lose value on the sale of a business.

Helping small businesses get up-to-date on their financial reporting

Many times, small-business sales fall apart due to poor accounting and the inability to produce good financial records. Having accurate financial records may help you get top dollar when it’s time to sell your business.  

Our accounting professionals help small businesses bring their financial records up to date. Depending on the condition of your financial accounting records, this may entail a lot of work, but it is well worth it in the long run to get the best possible price for your business. We have consulted with many businesses and helped them maximize their sales price for their business by fixing their accounting records.

Preparing a cash business for sale

If you operate a cash business, receipts and expenses could be difficult to quantify unless you’ve maintained good records. Implementing an accounting system will put your business in the best financial light.  

Our team has helped cash businesses look their best by reviewing all accounting records, combing through receipts with the owners, and creating updated financial statements. For one client, we assisted the business owners in preparing accurate financial statements that enabled them to sell their business for several million dollars.  

Positioning a high-value business for sale

Larger businesses have more sophisticated buyers. One client was able to leverage years of compiled and reviewed financial statements in the sale of their business, since the buyers were able to place more reliance on the financial data.  

Business financials beyond the accounting records

At Scheidel, Sullivan & Lanni, we understand your business is one of your biggest assets. And although we are a CPA firm, we also believe business planning requires a long view, with operations that don’t focus solely on the accounting. Therefore, we take a consultative whole-business approach with our corporate clients to keep their business functioning as an asset and not a liability.  

  1. Have an end game. Plan how you will exit—with succession (to family or key employees), a partner buyout, sale to an external party, or close operations. What activities do you need to employ to work towards that goal?
  2. Assess your human and financial resources at all times to boost profitability. For example, get rid of stale inventory, hire up to enhance sales or trim down ancillary workforce to reduce expenses, and evaluate employee benefits for maximal value and ROI. 
  3. As the end date approaches, get your records in shape to achieve your objective, such as highest dollar sale or maximum contributions to your retirement plan.

In short, good financial records are not only of interest to buyers—they’re also to a seller’s benefit. Solid financials show the full, true value of the business, and help ensure that the seller doesn’t leave a lot of money on the transaction table. Make sure you position your business for the best sale price; contact Scheidel, Sullivan & Lanni for a financial consultation at [email protected].

At Scheidel, Sullivan & Lanni, we can assist you with corporate tax planning, financial and estate planning, and provide management advisory services to guide business planning and strategic growth. Contact us to discuss your needs and set up 2022 for success at [email protected] or 201-236-2226.

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