By Jeff Swiggett, CBI, M&AMI
In my last post, I wrote that while it may not be the best time to sell a business, it is a great time to work on a business. The work I am suggesting does not even require a lot of money but instead just a commitment of time and staff.
Almost all companies manage basic accounting functions through the use of Quickbooks or some equivalent software. These programs pack a lot of punch. If utilized to their fullest extent and care is taken in what is recorded, they can provide valuable operating information. From the perspective of a buyer, they want financial reporting to focus on three things. The first is detailing revenues by products and services and the costs of goods associated with each of them because understanding what does and does not make money for a business is paramount to buyers. Doing this may add many income and expense accounts to the general ledger, but the information gained will be good for both the owners and the buyers.
The second is creating accurate internal financial statements that match the information the company files with their tax returns. There is nothing more frustrating to a buyer than finding that a firm’s CPA has to adjust the tax returns to account for inaccuracies in the financial statements. When this happens, buyers discount the details revealed in the financial statements. All that good revenue and cost information becomes immediately suspect.
The third and last is to make balance sheets mean something. Clean them up and remove obsolete inventory, equipment no longer used or on the books, shareholder loans that will never be repaid, and expired liabilities. Most owners focus on their income statements but ignore their balance sheets. Learn to love them because buyers are going to focus on them.
Developing this kind of financial reporting requires a commitment, and not doing it will reflect badly on the company. Our experience and that of our buyers has shown that companies with good, accurate reporting are run better than those without it. There is no better time to improve when things are slow. Firms that do so now will reap the rewards when things get busy.