I have written many times about the need for getting your business ready to sell in order to make the most out of the transaction.    Hopefully you have spent the time cleaning up your financials and they accurately represent the Company’s financial strength, as well as presenting your Company in it’s best light.  Assuming you have done this, now what?   At least now you can feel comfortable that a buyer can come and look at your numbers and you can explain them.  The worst answer to say to a buyer who is questioning your financials is, “I don’t know.”  You have to show them you know where all your dollars are going, what they are paying for, and if they are going up or down.  If you can answer those questions then the buyer will feel that you have a handle on the Company.

The next step after cleaning up and understanding your financials is to present them in a format that a buyer would like to see.   I want to change your focus… here onto the buyer and how they see your financials.  Take a quick step back and think about what would be important for you to see if you wanted to buy your competitors business.  Write down on a piece of paper the key financial facts that are important in your industry and in having a successful business in that industry.  Learn the industy trends and be able to talk about the next few years based upon those trends.  Look at your financials and see what types of reports you would like to see if you wanted to buy the business.  A few standard reports would be -

Sales and Cost of Sales - By month, by year, by class, by category, by client, by employee, by machine hour, by sales rep, by product, by service, and against budget.

Back log of work (projects under contract but not yet billed), Estimates outstanding, Estimates to complete, and Estimate conversion percentage.

Break even analysis, cash flow statement, profit/loss report, current ratio (current assets/current liabilities), debt ratio (total assets/total liabilities). 

There are numerous industry specific reports that the seller should start generating so a history can be presented.  I will promise you that if you take the time to prepare and generate these reports for a year it will impress the hell out of a buyer and make the financing process much smoother.

Here is the worst case, you figure out what reports would be good to show a buyer and then take the time to implement the monthly reporting and the numbers come out looking bad.  You now have a bench mark on how to make your business more valuable and now take the time to make a change.  Knowledge is power and with clean books and reports you will be energized by your new found power!!

This entry was posted on Tuesday, July 28th, 2009 at 9:42 am and is filed under Sell Your Business, Buy a Business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.