Selling your business? The numbers you need to know
Numbers are important throughout the life of a business, but perhaps never so critical as when it comes time to sell.
When presenting a business to buyers, numbers tell the story of what your business is, where it has been and where it could potentially go.
Here’s an insight into the numbers that matter for sale, and how to ensure you books are in the best possible shape.
Tidying your books
If you’re planning on selling your business, the numbers are the first factor any prospective buyer will seek to understand.
Chances are it won’t just be them perusing your financials, either. There’s a likelihood they will engage a qualified accountant to take a deep dive into those figures as well.
The tidier your books are, the better and more professional your business looks, and the easier it is for buyers to fully comprehend your business operation and its potential.
So, what numbers will they be looking for and what should you make available?
Your financial statements
Your financial statements paint a detailed official picture of where your business has been and where it could potentially go.
Including profit and loss, gross and nett income, this is likely to be the first document every buyer seeks. If a potential buyer requires finance, this is also one of the most critical documents that a lender and accountant will assess.
Your sales figures
Chances are a prospective buyer won’t just rely on the profit and loss, but will look to go deeper into your sales history.
The sales figures allow them to understand cash flow trends, popular product lines and services, and peak or slow periods. It also allows them to identify where there may be a gap in the market that they could fill.
An asset list allows a prospective buyer to understand exactly what comes with the business for sale and what liabilities they may have in terms of aging or outdated equipment.
This will be a non-negotiable document and should include the depreciation schedule from your accountant.
The inventory list allows a buyer to understand what stock is included in the sale, what has been sitting in a business too long, and whether they will require immediate cash to re-stock low items. Again, this document will be non-negotiable.
Your price list indicates where you stand compared to your competitors in terms of the products or services you offer. It allows a buyer to gauge whether there’s potential to raise the price, whether items or services are priced fairly, or whether they could gain better efficiency by manufacturing the item differently, or sourcing it elsewhere.
Your debtors and creditors
A list of debtors and creditors tells a story about your customer service, and your business’ reputation when it comes to paying its dues. Outstanding debtors may indicate unhappy clients, while outstanding creditors might illustrate your business has a poor reputation for paying its bills.
If your business has existing staff this can be both a positive and a negative for any potential buyer. They’ll be seeking to understand staff levels, staff expertise, staff costs and any entitlements that they will be liable for in the near future, like long-service leave.
The final audit
Together, these items paint a comprehensive picture of any business operation and if you’re serious about selling, you should have them at the ready.
It’s also important to note that throughout the life of a business, numbers like those listed above are critical to business success. In addition to assisting potential buyers make decisions about your business, they can also aid you as the business operator when it comes to running your business day-to-day.
Our advice? Don’t wait until it comes time to sell. Know your numbers, know your business story, and empower yourself to make Better Business Decisions.
Want help to make Better Business Decisions
With over 30 years experience spent deep in the trenches of tax accounting and small business, Liz Jarvis is far from your average chartered accountant.
As the founder of Better Business Decisions, she is a passionate advocate for small and medium business, who educates and empowers operators to understand the story their business numbers tell.