At least once a year, you should be doing an analysis of
your business to make sure that your books and records are in working
order. It’s not only good to see the progression of your company but to verify
that both your accounts payables and receivables are in the black if you
do decide later about selling.
Specifically, you should be paying attention to profit and
loss statements (P&Ls) when analyzing your business. Make sure that you are able to
account for all the income that your business has earned as well as all
There are two ways to cast a P&L:
tax purposes, a P&L is slanted to show maximum expenses and minimum
help sell your business for top dollar, the P&L is re-casted to show the
actual ongoing business expenses and maximum profit.
Remember, buyers are looking for a business that’s making a
profit. So when reconstructing the P&L statement, pull out the personal
expenses, overstated inventory, non-deductable expenses, owner’s personal
insurance, salary, promotion expenditures, travel and entertainment,
depreciation on equipment, auto expenses, bad debt, donations, interest and
income tax. Once you remove these items from the “losses” category, the money
gets added to the “profits” category. Now, you should be left with a truer net
Realistically, you should have in order the last three years
of P&Ls, especially, if you are selling your business. You can prove to the
buyer that your company is worth your asking price. Establish a record of
steady profitability as well that will help you see not only how your business
is progressing, but can show a potential buyer that it is a proven money maker.
An important aspect to inventory is all your furniture,
fixtures and equipment. In addition, note which items are leased or rented. If
you’re preparing to sell, you are going to want to make a complete list of
everything that is included in the price.
For example, many potential buyers will assume that when
they tour an establishment, everything they see is included at no additional
cost. Therefore, you want to have a separate list that describes everything
that is being rented, leased or will not automatically be included. There have
been instances where the seller didn’t include an outside sign on the property
that he was leasing for $350 a month. As a result, the sale ended altogether at
the closing table.
It cannot be stressed any further that you need
to keep good business records, regardless if you plan to be in business for
several years or sell within the near future to a prospective buyer. Knowing
what your value is will only help you in the long run.