Why Are Financials Critical?

by Arnold Pierce Kelsey 16th of May, 2023

Why Are Financials Critical?

As a business broker, my role extends beyond just evaluating financial statements and facilitating a sale process. I also provide valuable guidance and support to my clients throughout the entire process, from preparing their business for sale to negotiating the final sale price. The process and the following points in this article are even more crucial in the sale of a multi-million dollar business as the business is likely to be scrutinised by high-profile accountants and financial analysts.

A crucial aspect of selling a business is setting the right price. A business's value is not just based on its financial performance but also on other factors such as its growth potential, market position, and competition. As a business broker, I use my expertise and experience to evaluate these factors and determine a fair price for the business.

Financials are the lifeblood of any business, and they play an especially critical role in the sale of a multi-million dollar business. When it comes to buying and selling a business, financials are an essential component that potential buyers use to assess the value and profitability of the business. The EOFY provides the ideal time to prepare up to date financials to assist in the sale of a business. A well-prepared up to date financial statement provides a clear picture of a company's financial performance, its assets, liabilities, and the cash flow generated over the years. In this article, I explore why financials are crucial to the sale of a multi-million dollar business.

One of the primary reasons why financials are critical to the sale of a multi-million dollar business is that they help to determine my appraisal of the business. A buyer would want to know the current and future cash flows generated by the business, the assets, and liabilities, including any debts and obligations. By analysing the financial statements, a buyer can determine the current and future earning potential of the business and make an informed decision on whether to buy the business or not.

Another reason why financials are essential in the sale of a multi-million dollar business is that they provide transparency into the financial performance of the business. A well-prepared financial statement provides a clear picture of the company's revenue, expenses, and profits. This information is critical for potential buyers to evaluate the business's financial health and make an informed decision on whether it is a good investment. Financial statements also help to identify potential risks associated with the business. For instance, if a business is highly leveraged, it may be at risk of defaulting on its debt obligations, which could lead to bankruptcy. By analysing the financial statements, a buyer can identify potential risks and make informed decisions on how to mitigate them.

financials are critical in a business sale

Before purchasing a multi-million dollar business, buyers and their financial team will conduct due diligence to assess the business's financial and operational performance. Financial statements provide a wealth of information that can be used to conduct due diligence. By analysing the financial statements, buyer and their team are able to identify any areas of concern and ask the seller relevant questions during the due diligence process.

Finally, financials provide a basis for negotiation between the buyer and seller. If a buyer identifies any areas of concern in the financial statements, they can use this information to negotiate a lower purchase price or other favourable terms. On the other hand, if the financial statements show that the business is performing well, the seller might be able to use this information to stand firm on their asking price.

In conclusion, financials are critical to the sale of a multi-million dollar business. They help to determine the value of the business, provide transparency, identify risks, facilitate due diligence, and provide a basis for negotiation. Therefore, it is imperative for business owners to ensure that their financial statements are accurate, up-to-date, and well-prepared before putting their business on the market.

Tags: financials exit strategy selling