The Importance of Financial Data
Here’s the truth of the matter – business owners are busy people. With most of their focus directed to working “in” the business, they may not always place a high importance on having business financial statements, tax returns and other business documents close at hand. Some have offloaded all financial record-keeping tasks to their accountant or bookkeeper, and occasionally look at the data being generated except when it’s time to pay taxes.
Still other business owners review a few metrics and generally place low importance on referring to their financial statements for overall insight into making good business decisions and management of their operations. Often, it’s because they simply have not taken the time to understand them.
Not only does this make proper business planning and making good, data-driven decisions difficult, but when it comes to selling their business, it can be even more problematic and lead to delays in moving forward with the business valuation and going to market.
So, what do you need, and how do you gather it? Here are some things you, as a business owner, should have within easy reach at all times.
Profit and Loss
We all know about profit and loss statements and how important they can be, but many business owners typically glance at the top line and bottom line at the end of each month or each quarter, and as long as they are still making money, they feel good about things.
However, that means they are missing some critical data. As an example, Cost of Goods Sold when measured as a percentage of sales can fluctuate, and over time if the percentage trends upward without action, profits will substantially decline.
When you’re ready to sell, and begin the selling discussion with a business broker, its important to have readily available 3 to 4 years of annual financial statements, as well as the current year-to-date financial statements. Additionally, if there is some seasonality to the business, having monthly sales revenue data available for the most recent 2 to 3-year period will be important to analyze, too.
Assets
This may sound obvious, but many businesses do not keep regular track of their assets, equipment and technology (until it breaks). Its important to maintain and periodically update a list of business assets (furniture, fixtures and equipment) and their fair market value. Assigning a fair market value to the assets will be of key importance when selling the business.
Inventory is another important asset to maintain, especially when preparing a business to be sold. Old, obsolete and non-salable inventory should be pulled and written off. Doing this will improve the inventory turn ratio. Taking an annual physical inventory count is a must, as a buyer will appreciate taking over a business where attention to good inventory management and record-keeping have been maintained.
Tax Returns
Unlike political candidates, you can’t withhold your tax returns when selling a business, but you should not want to either. Your tax returns say a lot about the health of your business. It will be important to have 3 to 4 years of business tax returns easily accessible. If you’re serious about going to market to sell your business, don’t delay having a return prepared for the most recent business year. Filing an extension will be counterproductive to moving forward.
Bottom Line
Are you ready to sell your business? Are you unsure of how to prepare? Do you have questions about what financial records you’ll need to provide? Give me a call or send me an email today. I’d love to start a conversation with you about what it takes to sell your business, and how you can get it ready. Phone: (417) 496-6565; Email: [email protected]