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
Keith Green - selling businesses and advising SME business owners since 1997 and still enjoying it.
Selling Your Business
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