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Thursday, April 23, 2009

Keeping Good Business Records

JoAnn Lombardi
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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 incurred expenses.  
There are two ways to cast a P&L:  
  1. For tax purposes, a P&L is slanted to show maximum expenses and minimum profit;
  2. To 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 profit.  
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.


Response to: Keeping Good Business Records
Frank Boone says
Good record keeping can show whether your business is improving, which items are selling and what changes are needed. It can be the difference not only between failure and success but if you will be able to sell to a prospective buyer.

Response to: Keeping Good Business Records
William Croye says
I agree that keeping good records is essential to anyone's financial survival, regardless of the business that you own. I know for my own company's sake, we do a full inventory twice a year, otherwise it becomes a major headache.

Response to: Keeping Good Business Records
Niki Lemchenka says
You need good records to prepare accurate financial statements, whether for tax time, preparing your next budget or selling your business. These should without question include income (profit and loss) statements and balance sheets. These statements can be a big help when dealing with your bank and creditors.

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