A Company's Business Records Will Affect The Company's Value.

April 09, 2010 by Robert Dean

It is important to have good Books & Records to run a successful business, but it's also very important to have good Books & Records to sell a business.

I have dealt with Business Owners with both immaculate Books & Records and owners with improper Books & Records. If your looking to acquire a business, which business would you rather buy? I think you know the answer. It is very difficult to properly value a business with poor books & records.

If you want to get optimum value for your business, make sure you have a solid grasp on your company's business financials. Make sure you have Profit & Loss Statements and Tax Returns and for 3 years, a Balance Sheet, a General Ledger and Bank Statements. You will also need this to qualify for SBA business acquisition financing.

1. If you don't have a Profit &
   
   Loss, this is where I would start. This will show a buyer exactly how your
   
   company operates. Break it down into Gross Revenue, Cost of Goods Sold,
   
   Gross Profit, Company Expenses, and Net Profit.


2. The Balance Sheet is a snapshot of
   
   your business at this exact period of time. This will show a buyer where
   
   he is at that time, and what he will need to do next. This will greatly help if
   
   the business deals with a lot of inventory.


3. Tax Returns will help corroborate
   
   gross revenue, but your Tax Returns do not necessarily state the exact
   
   Discretionary Earnings for the owner. Everyone has their legal deductions
   
   for their business, and it does affect their taxes, but will not affect your
   
   company's value.


4. You're General Ledger and Bank
   
   Statements should corroborate your gross earnings and match up with
   
   your Profit and Loss Statements. This is one of the primary elements of Buyer Due Diligence on your company

As a BizEx Business Broker, I analyze the financials to determine the Discretionary Earnings of the business owner. The more confident the buyer is in the financials of the company, the more likely they are to purchase the business. This improved buyer activity will ultimately result in increasing the company's overall value.

So if you are thinking of selling your business, make sure that the financials are in order to help make the sales transaction a smooth one.

How to Sell