Essential Financial Documents for Online Business Founders Preparing for Exit
Steve Kilberg
I help Founders of Digital Businesses Leverage AI to Scale and Sell High ◆ M&A Advisor & Investor ◆ Follow & Subscribe for Unique AI Strategies to be Your Secret Weapon ◆ Link in Profile.
As a digital business owner, navigating the mergers and acquisitions (M&A) space can be exciting and daunting when you've decided to sell your asset.
As a digital business owner, navigating the mergers and acquisitions (M&A) space can be exciting and daunting when you decide to sell your asset.?
However, one of the critical mistakes I see as an M&A Advisor for online businesses is that many founders do not have their financials organized and ready.
When you realize that the financials are one of the first things any potential buyer will review, this should be a top priority for the owner.?
Surprisingly, the reality is far different.?
An organized set of financials will help your credibility and even increase your business's valuation.
1. Profit & Loss Statements
Your profit and loss (P&L) statements are the cornerstone of your financials.?
They provide a clear snapshot of your business's profitability.
Ideally, you’ll want the previous three years, but two will also work.
Potential buyers will scrutinize this statement to get a feel for your revenue trends, cost structure, and overall financial health.
Key Elements to Include:
2. Balance Sheets and Cash Flow Statements
Alongside your P&L statements, a balance sheet is often an overlooked document that potential buyers expect to see.
A balance sheet provides a snapshot of your business's assets, liabilities, and equity at a specific time.
While a cash flow statement shows the inflow and outflow of cash during a specific period, it’s not as important.
What to Prepare:
These documents will help buyers understand your business's liquidity and financial stability.
3. Detailed Revenue Breakdowns
Most buyers will then want to dig into the granularity of where your revenue is coming from.?
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A detailed breakdown of your revenue by product and/or service and possibly by customer segment can significantly enhance your business's appeal.?
This information lets potential buyers identify your most profitable areas and understand how your business operates.
It can also show areas of opportunity for the buyer to facilitate growth.
4. Customer Acquisition Cost (CAC) and Lifetime Value (LTV) Calculations
Understanding your customer metrics at a granularity is essential for any business growth and key for buyers to understand.
Calculating your Customer Acquisition Cost (CAC) and Lifetime Value (LTV), will help demonstrate the efficiency of your marketing efforts.
How to Calculate:
By presenting these metrics, you can illustrate the profitability and sustainability of your customer relationships, making your business more attractive to buyers.
5. Subscription or Recurring Revenue Metrics (if Applicable)
If your business model includes subscription services or recurring revenue streams, it’s incredibly helpful to present these metrics.
Recurring revenue provides confidence and predictability, which are attractive features for potential buyers.
Metrics to Include:
Calling out these figures can demonstrate confidence in your revenue model and the potential for future growth.
Conclusion
Preparing for an M&A process can be a very stressful experience.? But at the same time, it can be a very exciting time.
To recap, the documents you’ll need to help you get the most money for a sale include a P&L statement, a balance sheet, tax returns, revenue breakdowns, customer metrics, and recurring revenue data.
These core elements will showcase your business's value and potential.?
Remember, the more transparent and organized your financial data, the more confident potential buyers will be in your business's future.?