Unless you own an accounting firm, it’s likely that the record keeping and accounting parts of your business aren’t necessarily your daily top priority. You have a business to operate, employees to manage, inventory to sell.
However, if you are thinking about selling your business in the future – those record keeping and accounting skills will be paramount in getting you the biggest bang for your business investment.
How? Think about this point from a buyer’s perspective.
You are looking at two nearly identical businesses. They are in the same industry, in similar markets and locations and they generate the same amount of cash flow. The first business has immaculate records that stretch all the way back to the day they opened the doors – tax returns, P&L statements, inventory records, payroll records, the list goes on. When you as a buyer request records for this first business, they are already complete and organized and are handed over almost immediately.
For the second business, a request during due diligence for records gets you a poorly copied set of two years of tax returns and a box of receipts.
Remembering that these businesses are essentially the same in terms of cash flow, which one are you going to be willing to buy and which one will you pay more money for? The first business, right?
Why? You know what you’re getting. The history of the business, the current numbers, the contracts and leases – everything is right there for you to look at. There’s no guessing or lack of transparency. It’s all there on paper in black and white.
If this scenario has you instantly picturing the dusty box of receipts shoved under your desk – all is not lost. Getting your books in order may be challenging, but the return on investment of time will likely be substantial. You want buyers to be looking at how well your business is doing, not wondering how someone so disorganized keeps the doors open.
If you need help, help is available. Your business broker can guide you and refer you to a CPA who specializes in making records useful during a business transaction. All you need to do is ask and be upfront about the condition your records are actually in.
Are you panicking about the box of disaster under your desk? Would you like to know what types of records business buyers are going to want to see? Please feel free to leave any questions or comments here and we would be happy to help.
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