When you are preparing to sell a business, your financial records become much more than something you send to your accountant at the end of the year. They are one of the main ways a buyer tries to understand what they are actually purchasing. A buyer wants to see how the business has performed, what has driven that performance and whether the earnings being presented are likely to continue under new ownership.
Annual financial statements are important, but serious buyers will often want to look deeper. Current profit and loss statements, balance sheets, monthly management accounts, cash-flow information, sales data and relevant KPIs can all help build a clearer picture. For accounting, financial planning, mortgage broking and insurance businesses, that may also include recurring revenue, client retention, revenue by service line, margins and the concentration of revenue among major clients.
The numbers also need to make sense. If revenue increased sharply last year, what drove it? Was the increase spread across the client base or did one major client account for most of it? If profitability fell, was there an underlying problem or a genuine one-off expense? If the owner has personal or non-recurring expenses running through the accounts, can those adjustments be clearly identified and supported?
This is where reliable monthly reporting becomes particularly useful. Instead of asking a buyer to rely on a single annual snapshot, the owner can demonstrate how the business has performed throughout the year and over several years. Trends in revenue, margins, client numbers and recurring income become much easier to explain.
Poor financial records do not automatically mean a poor business, but they create uncertainty. Missing information, unexplained movements, inconsistent reporting or an excessive number of unsupported add-backs can make buyers question the reliability of the figures. That can slow due diligence and make the business appear riskier than it needs to.
Before going to market, look at your financial information as though you knew nothing about the business. Could you quickly understand where the revenue comes from? Could you explain major movements over the past few years? Do the figures being presented reconcile with the underlying records? The objective is not to make every year look perfect. It is to make the financial story clear, accurate and easy for a buyer to understand.
If you want to know more feel free to reach out. Contact us for personalised assistance and expert guidance.
Regards,
Tony Arena