Preparing Your Figures
In this Eclass we’re going to cover the essentials you need for reading your figures and having them prepared.
It is absolutely essential that you have the financial figures of your business properly prepared and presented – whether you are selling your business or not. They are the first thing a buyer or business broker will look at, and if they are in a mess you will be instantly lowering the value of your business.
In order to get an accurate valuation and market appraisal, you MUST have correct and up-to-date figures, and you must have good records so you know where to focus your efforts and so you can monitor your progress and success.
Remember we’re all about fast and simple – and to make your renovation fast and simple you need to be able to zero in on the areas of your business that will give you the best return for your efforts.
Just as important to note: nothing kills a sale faster than inaccurate or incomplete figures – we have seen businesses sell for LESS THAN HALF their value because the owner didn’t keep proper records or presented them inaccurately – and that’s literally like throwing money down the toilet.
Essentials for reading your figures
In this video, we’ll take you through the essential info you need to read your figures and understand what they will reveal to a potential buyer. This will help you understand your own business, and also help you feel more comfortable during a sale process. We are also going to show you the “red flags” that will be of concern to buyers. It’s essential that you recognise any red flags in your own business figures, so you can manage their effect.
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Preparing Your Figures
When you come to sell your business, your buyers will expect you to have accurately prepared figures – nothing looks more suspect or “sloppy” to a potential red hot buyer than having to wait for accurate or prepared figures.
It is not good enough to just hand over a rough set of draft figures – especially on larger sales. It’s very easy – just make sure your accountant is up to date and has everything they need to present any financial information about your business quickly and correctly.
In general this would involve: (don’t worry too much if you don’t understand some of these terms -your accountant will!)
- Last 3 years financial statements which will include Trading account, detailed Profit and Loss statement and balance sheet -as prepared by your accountant
- “Year to Date” Profit and Loss accounts -these can be quite simply management figures (usually just a MYOB print out will do) or get your accountant to prepare and keep up to date.
- The total benefits and remuneration derived from the business by you the owner
- A list of assets (plant & equipment) to be included in the sale
- An estimation of the level of stock to be included in the sale (Stock At Value -SAV)
- Debtors, creditors and average debtor days
- Details of wages and benefits currently being paid to each staff member.
- Levels of forward orders in hand, and likely direction of the market you cater for
IMPORTANT TIP: Get your accountant to create an add-back schedule
The idea here is to show a prospective buyer the true net profit of the business before tax – often called the EBIT (Earnings Before Interest and Tax) or “adjusted net profit”.
This is normal accounting practice and your accountant will prepare it for you. You need the add-back schedule because it shows the true return of the business. If the buyer just goes on the net profit shown on your tax figures, they will be basing their offer on a much lower figure.
We want to build up the net profit as much as possible, so look for all personal and one-off expenses that wouldn’t be there for a new buyer, and depending on the size and style of the business you can also add back the owners wages and super.
At the very least you should present the net profit as a figure “PLUS proprietor draws an additional $100,000 in wages and super”. Note here that often a wage will be drawn for the owners spouse (who actually does not work in the business day to day) and this needs to be added back too.
Ideally you should have this information for the last 3 years trading, the current Year-To-Date figures, and the and projected EBIT for the current financial year.
ANOTHER IMPORTANT TIP: Get your accountant to print this on their letterhead so it looks impartial and not just created by you or your broker.
We have included here an example worksheet and layout to demonstrate what we mean above. You are free to use these as templates and we suggest you modify them for your own business or get your accountant to fill them out for you.
Remember: You are trying to get to the final net profit because this is the all important figure that your business value is based upon
Action To Take:
Make an appointment with your accountant, or book in a coaching call with us to get your figures in order, your add-back schedule completed and work out your Adjusted or True Net Profit. This is an important step to complete in valuing and preparing your business for sale, so book in your call now!
Once you have your figures prepared, look over them with the eyes of a potential buyer – are there any red flags that stand out?
In the next Eclass
Now you have a clearer picture of where you are, but now you need a clear picture of where you are going.
Next week we are going to reveal one of the essential keys to this whole process, which is something that 99% of business owners never think about – even when they put their business on the market to sell.
And this will completely change the way you view your business, and may even revolutionise your goals – We’ll look forward to exposing all next week!
In the meantime, if you have any questions, just email us at [email protected] and we’ll be happy to help.
See you next week!
Matt and Liz