Are you a business owner looking forward to selling your business?
If that is a yes, have you prepared the financial statements for your business to position it in the best light? Before selling your business, you must prepare your company for due diligence and auditing from the potential buyer.
The quality of financial information plays a significant role in selling a business and attracting buyers for it. Preparing the financial statements is part of the challenging early steps in the business selling journey. To attract potential buyers, it is essential to show them the accurate company finances you have utilized to run the business operations.
When you show structured and organized financial statements to potential buyers, the chances of them buying your business after due diligence increases. Buyers ask for the following things before they buy any business.
- Income tax returns
- Bank statements
- Balance sheets
- YTD Financials
Moreover, the potential buyers involve their financial officers and advisors to check the financial status of your business.
What do buyers review in the financial statements?
Most of the buyers have their minds filled with profitability and growth. They look for reporting consistency, credibility, and opportunity.
Your reporting consistency must conclude a meaningful derivation of your financial statements. In most private organizations, things can get captured in different ways based on industry standards which can cause confusion.
A sophisticated buyer always looks for credibility and checks whether the numbers match. You need to be prepared for a company audit from the buyer’s team during the due diligence period.
Buyers will look for both weaknesses and opportunities when reviewing a company’s finances. It is crucial to showcase where there is growth potential by providing multi-year financials.
Giving the potential buyers an up-to-date business valuation through a 3rd party will facilitate negotiations on your business’s worth.
Which Financials should you disclose to buyers?
Don’t show or inform the buyer about everything in the first go. An experienced advisor can guide you through the stages of marketing your company and the amount of information you want to make available to the public and the information that can only be shared under an NDA. In highly competitive industries it is important to know the right time and what to represent in the sale of the material.
Consider the importance of your financial statements when preparing your business for sale. Work with specialized financial professionals who can help support you in preparing your company’s balance sheet and operating expenses for business valuation before sale.