How to Sell Your Business: Get the Books in Order

by Dione Mauric 30th of April, 2024

How to Sell Your Business: Get the Books in Order

We work closely with a lot of small business owners and understand their financial needs, fears, and aspirations at a detailed level. However, many of them overlook a crucial aspect of running a business, which is planning for the eventual sale of their company.

We’ve noticed that some entrepreneurs often feel anxious and scared when they have to sell their business without proper planning. There are ways for small business owners to retire while optimizing their financials and reducing their taxes at the same time. However, you don’t necessarily have to be retiring to sell your business. You may just want to move on to a new venture or free up some of your financial resources. Regardless of your reasons for selling your small business, one thing is certain: you must get your books to ensure a smooth sale.

What Happens When You Go to Sell Your Business?

When you decide to sell your business, regardless of its size, several people will scrutinize your history and financial records. This includes lawyers, accountants, prospective buyers, business valuation experts, and any other parties involved in the sale. It’s crucial to ensure that all your records are to avoid any complications during the sale process.

The documents required for a business transaction may vary, but in most cases, potential buyers would want to review your tax returns and financial statements for the past few years. They may also ask for your accounting records to verify the business’s income during the same period. Essentially, they want to understand the business better before making a purchase decision. Any discrepancies or mismanagement in financial records can raise concerns for buyers, especially for their lawyers and accountants.

Get Books in Order to Sell a Business

What It Means to “Get Your Books in Order”

Getting your books in order is a term that is thrown around a lot. But when you get down to it, what does it mean?

Standardize your accounting Over the years, I’ve worked with various accountants. But before selling, it’s important to ensure that your books are clear, easy to understand, and meet industry standards.
Have transparent cash flow records – When selling a business, it’s important to keep in mind that the sale price is typically two to six times the current cash flow.

However, the final price will depend on the market and the sales of comparable companies. The key to getting the best price for your business is to maintain transparent records of all your financial transactions. Any errors or inconsistencies in your financial records may lead to a lower sale price or even discourage potential buyers from making an offer. Therefore, it’s crucial to ensure that your financial records are accurate and up-to-date before listing your business for sale.

Cut expenses if you can – When it’s time to sell your business, you’ll want to present it as profitable as possible. To achieve this, take a close look at all your expenses as soon as you decide to sell. Identify any unnecessary expenses and cut them off. Most businesses have old, forgotten, or no longer required expenses that can be eliminated to make the business look more profitable to potential buyers.

How to Prepare to Sell

As a business owner, it’s important to treat your books as if you may need or want to sell your business at any time. If you wait until it’;s time to sell to clean up your books and search for records, you’re likely to miss something or make an error.

Therefore, it’s better to keep your books organized and up-to-date from the start, so you can avoid any potential issues in the future.

By closely managing cash flow, keeping accurate records, handling accounts payable and receivable, eliminating unnecessary expenses, and standardising books, you’ll be more profitable owning and selling your business.

Have questions about how to sell a business and actually can optimise your business for selling? You’re in the right place – contact us at Advantage Business Sales & Valuations for further assistance.

Tags: selling exit strategy tips small business