by Dave Driscoll
Why You Can’t Sell Your Business Without Complete and Accurate Business Financials
I need to vent my frustration with business owners wanting to sell their businesses with incomplete or nonexistent financial information.
All the sexy graphs, pictures, history, exciting stories and hard work to create interest in your business will not support a sale if the financials of the business are not readily available, clear, well-organized and supportive of the value you are asking for the business.
Making the decision to sell a business is hard, and lack of good financial information further complicates the process. Once buyers are past the beauty contest stage, the next request is for hard evidence of the historical financial operations of the business. Buyers very rarely buy on looks alone.
How much revenue has your business generated each year? What is the cost of goods sold, and how do those costs break out? What is the detail behind the operational expenses? Just showing profit isn’t good enough; prospective buyers want to analyze how the business and expenses are managed to examine opportunities that may be created under their ownership.
Financial statements are the DNA of a business. Those accustomed to analyzing financials can develop a pretty clear picture of how the business operates by that data alone. If their analysis does not match the narrative being promoted, the contradiction will lead to a lack of trust. Once trust is lost, the process becomes significantly harder and more time-consuming, as every number, account and statement will then be questioned by the buyer.
Listing your business for sale without complete, accurate financial information is like going on a first date with outdated clothes that don’t fit and an empty wallet – your encounter will be very short.
Before listing your business with a broker or a mergers and acquisitions specialist, provide him/her with an organized packet of the company’s past and current financial information. Your business broker should be able to assemble the information into a clear presentation showing the historical performance of your business, its current condition and a projection of future expectations. In addition to assembling the information to produce the relevant data, this will allow the business broker to understand how your business works so he/she can have logical conversations with prospective buyers.
If your broker cannot assemble your company’s financial picture and comfortably discuss the information with potential buyers, find another broker! You must be able to rely on your broker as your intermediary to handle initial information requests and questions from prospects. No potential buyer should be introduced to you, the seller, until qualified as an appropriate, serious prospect by your broker. You need to continue to run your business to maintain its financial performance. While you concentrate on that priority, the broker’s duty is to qualify all inquiries. Those business brokers who want to only list a business, collect fees and have the owner field all the questions should be avoided.
Complete financials are essential to deepen buyer interest and pursue a possible deal. Make sure you are ready to make a good first impression! Invest the money necessary for a dependable accountant and a reliable business broker to support that initial introduction to the potential next owner of your business. Only then will you have an opportunity for a second date.
Dave Driscoll is president of Metro Business Advisors, a mergers and acquisitions, valuation, and exit/succession planning firm helping owners of companies with revenue up to $20 million. sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or (314) 303-5600. www.MetroBusinessAdvisors.com.
Submitted 9 years 172 days ago