When considering the acquisition of a business for sale, buyers want to know not only the recent history (hence 3 years Accounts), but also the up to date status of the company. So, as a minimum I recommend that sellers present the latest financial year management accounts for the latest month available. For example as I type this on October 30th I would expect most businesses to have their figures to the end of September. Month-end figures are tidy because they include all income and expenditure in the month whereas mid-month accounts will have items missing (often salaries, which are paid at the end of the month)..
Another reason why management accounts are important may be because the latest financial year-end accounts may not yet be ready. Many companies have their year-end on December 31st and will only recently have filed within the September deadline. Similarly many businesses have a year-end of March 31st and may only be now beginning to prepare their accounts for filing. So, for these businesses we may need the management accounts for year-end March 31st and the figures to September 30th.
Management Accounts can take many forms these days. A Sage accounting package is the most commonly used form and this gives a very handy print of month end profit and loss and a balance sheet. So do other packages such as QuickBooks, Xero and so on. Often smaller businesses may just use a simple Excel (or not so simple) spreadsheet.
Other important data which it is useful to show is a breakdown over (say) the last 24 months on a month-by-month basis. This will show any seasonal trends which may be a consideration to a buyer e.g. he/she may be looking to acquire a business with a strong summer bias to compliment another business which is busier in winter.
A 24 month breakdown on a customer-by-customer basis may be useful also. Whilst it may be sensitive to reveal customer names these can be shown by type, or simply Customer 1, Customer 2 etc. Obviously if the business has dozens or hundreds of customers it is not practical to show this information but many SMEs have a core of 6-12 main customers and this can be provided.
Finally the process of revealing this data does need to be carefully managed by use of a Non Disclosure Agreement or similar Confidentiality Undertaking. But having this information can greatly assist both buyer and seller. The seller is showing they are serious about selling and the buyer can begin to make an appraisal of the company without wasting time requesting such data or on abortive visits to poorly prepared businesses.
October 30th 2014
In my blog post of October 6th 2014 I published a checklist which I send to prospective new clients who are considering a sale of their business or company. Here I'll expand on the first item on that checklist "Copies of last 3 years accounts (including latest accounting year)".
To most people it may seem fundamental that to sell, or to consider buying a business, you need to produce accurate and timely accounting information. This provides several levels of authenticity and verification of the business concerned:
1. The accounts show the trading history over a reasonable timespan
2. They show the ownership and shareholding (or partnership) structure of the business
3. They may show business trends, i.e.owner's drawings/salary, increased/reduced sales or profitability, changes in stockholding, asset values, debtors and creditors, cash position, liquidity ratios, borrowings, overheads and expenses - the list goes on
4. Most importantly (in my view) by producing accounts it shows that the vendor (and his/her broker or agent) is serious about selling the business. Only last week I heard from a prospective buyer who had been to see 2 businesses marketed by other agencies only to find that the glowing online advert description did not match the reality of the business. This, unfortunately is not an uncommon story. The provision of accounts would have saved the prospective buyer a lot of time, not to mention the vendors.
Of course it may not be that simple to provide 3 years straightforward accounting history. On my desk I have an enquiry from a business which was a sole trader until 2013 then incorporated as a limited company. The accounts provided cover the periods:
1.9.2011 to 31.8.2012 (Sole Trader)
1.9.2012 to 31.5.2013 (Sole Trader) and
1.2.2013 to 31.5.2014 (Limited Company)
However the important thing is that there are no gaps and, as mentioned in my points 1. and 2. above the accounts do show trading and ownership structures.
The other important point is that accounts should be produced promptly when selling. Many buyers will not seriously consider a business which does not have Annual Accounts for the latest trading year.
Finally, some businesses simply cannot produce 3 years worth of accounts, maybe the business isn't even 3 years old, or maybe it is part of a larger company. So we have to provide as much information as possible. This may be management figures, 1 years accounts plus management figures or even an interim set of accounts or Sage, QuickBooks or Excel analysis (or similar). In some ways this "raw" information may be more useful than full accounts and I shall explore this in more detail in later posts.
Thank you for reading this. If you are thinking of buying or selling a business please get in touch.
13th October 2014
In my last blog post I wrote about Preparing a Business for Sale. Now I am going to delve into that in more detail.
Below is a copy of a Checklist I send to prospective new clients and over the next few posts I'll expand on the information needed to successfully market and sell a business.
INFORMATION COLLATION CHECKLIST - BUSINESS VALUATION & DISPOSAL
This checklist outlines most of the information needed to compile a business sale file.
Keith Green - selling businesses and advising SME business owners since 1997 and still enjoying it.