Selling a business? Check your records!
Whether you bought a business or started one from scratch, most business owners went into business because they wanted to replace an income or because they had a passion for the industry they operate in. You wanted freedom and thought that being your own boss would be the ultimate way to break free and you would be able to work only whenever you wanted…
WRONG; nobody told you about the endless admin and paperwork needed to be done. While most business owners come to grips with this reality pretty quickly, some will never keep good records for their business. In essence it is not always a big problem apart from spending more on admin fees and accountancy fees in the long run. My strong recommendation is to pay someone to do the admin if you don’t like it.
Besides the chance of being audited by the IRD I will give you one good reason why you want to keep good records; to sell your business!
Cashing in? Keep good records
You might not realise it now but there will be a time that you would want to cash in on your hard work and dedication to building your business. You could outgrow the company or feeling that you are not the right person to take the business to the next level… you might just want to retire, but the time will come!
As a business broker we get to see lots of different admin styles. Of the businesses that we see, that have indicated they want to sell, about half we could not take to market because of a lack of record keeping. They either don’t use a proper bookkeeping system (Xero, MYOB etc) or they just can’t provide proof of profitability. This makes it very difficult to sell a business.
When you are selling a business you ask the purchaser to part with a lot of money. It is more than fair that you show him that your business is worth the risk of buying it. When you have accounts for the last 2 years but you can’t verify the expenses or proof that some personal expenses are running through the business, the chances are that it will have a big impact on the value of the business.
Records you should be able to show when you sell a business:
- Bank statements
- Wage books
- Invoices and Receipts
- Stocktake figures
- Year to date management accounts
- List of debtors and creditors
- List of assets and liabilities
- Depreciation schedule
- Updated chattel list
- Final accounts; profit & Loss + balance sheet
- GST returns
Tip if you plan to sell your business in the next 5 years; Keep your business records separate from your personal records.
Another way around this problem is to ask your accountant for a “Seller’s Statement”. This is a “normalised” set of accounts, with your personal expenses added back into your profits to reflect a higher (accurate) profit to a working owner.
FREE LINK Northland downloads:
FREE Booklet outlining the sales process: Managing The Sale of Your Business
FREE Booklet outlining other options to an Exit Strategy