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