As a business owner, you know that the financial health of your company is the backbone of your operation. When it comes time to sell your business, keeping disorganized financials can turn into a disaster. Clean and accurate financial records are essential, and we often tell business owners to “clean it up”—both inside and outside of the business. Most importantly, make sure your financials are in order. A reliable financial statement is often more crucial to a sale than any promises or assurances you can make.
It’s easy to let financial management slip while dealing with the day-to-day operations, but that can become a bad habit that hurts you when it’s time to sell your business.
Here are four major financial mistakes to avoid when selling your business:
1. Not Keeping Up-to-Date Records
Nobody enjoys tracking receipts, balancing books, or keeping up with accounts payable and receivable, but these are the foundation of your business. You need a reliable system to track invoices, accounts payable, accounts receivable, and expenses—and ensure they’re up to date. Most businesses use QuickBooks or a proprietary system to manage this. Whatever method you choose, stay on top of it.
2. Not Budgeting or Forecasting
If your financial strategy is short-term and reactive, you’re missing out on opportunities to build long-term value. A successful business that is attractive to buyers has a long-term financial strategy in place. Budgeting and forecasting are critical for long-term growth and stability, both of which will increase your business’s value when it’s time to sell.
3. Not Using an Accountant or Bookkeeper
If you don’t have expertise in accounting, it’s time to invest in someone who does. Keeping your own books without proper knowledge can lead to costly mistakes. A good bookkeeper or accountant will ensure that your financials are accurate, up-to-date, and ready for potential buyers to review—making your business much more sellable.
4. Improper Documentation of Personal Expenses as Add-Backs
Many business owners run personal expenses through their business. When selling, it’s critical to document these as legitimate add-backs, as they aren’t true business expenses. These add-backs increase your company’s profitability and overall value. Take the time to comb through your historical expenses for items like excess compensation, family salaries, or personal expenses like vacations that were expensed through the company. Buyers will take these into account, and it could result in a higher valuation.
Overview
The value of your business is based largely on the strength of its historical income statements. It’s essential that your financial records are accurate, verifiable, and well-maintained. Buyers and lenders will review them carefully, and any discrepancies can be a deal killer. What may seem like small oversights can add up over time and create significant problems when it’s time to sell.
The key to maintaining the health of your business—and ensuring a smooth sale in the future—is responsible financial management.
Need Expert Help with Your Exit Strategy?
While these four steps are critical for planning a successful exit, working with a professional business broker can help you address additional steps based on your unique circumstances. At Benjamin Ross Group, we can help you navigate the complexities of selling your business.
Contact us today to speak with a business broker who can help you start the process. You can also download our Selling a Business Checklist to learn more about preparing your business for sale.
