What financial reports will my business broker need to sell a business?
When selling a business and engaging with a business broker, the business transfer agent will often request a list of financial records to build an accurate image of your business. Accounting reports and financial statements provide a window into the financial health of your business which is the foremost factor considered by parties when buying a business.
When pricing a business, accounting records and the financial history of your business will play a major hand in determining its value. A business valuation is largely based on how much similar businesses sold for. To determine the bracket within which your business sits, basic accounting records must be provided.
We run through the significance of having up-to-date accounting records to hand when selling a business, what records you should provide and why retaining such information can help bolster the sale process.
What financial reports should I provide to support a business sale?
When preparing to sell a business, you will need to arrange a business valuation to calculate how much your business is worth. This information can then be used to price your business at a fair value and indicate how much flexibility you have when negotiating a sale price.
- Company Accounts – A copy of three years’ worth of company accounts will be requested to support the business valuation process. Company accounts comprise key accounting reports, the balance sheet, profit and loss statement, and cash flow statement.
To effectively market your business to potential buyers, share the listing with other brokers networks and advertise on online marketplaces, your appointed business broker will work with you to produce an information memorandum, also known as a sales memorandum.
A sales memo or teaser document will feature a profile of your business and include the following information.
Financial overview - Balance sheet, cash flow forecast and profit and loss
Company overview – Business information, location, employees, operating hours, management structure, reason for sale, growth potential, property information and finance facilities
Expressions of interests – Instructions on how to register interest, deadline and contact information
To create an information memorandum and support the business sale process, the following information may be requested.
- Cash flow forecast – Cash flow projections estimate the financial track the business is likely to take over a given period if it continues at its current rate. This is based on how much money the business is likely to pay out and receive. Cash flow forecasts can help potential buyers assess how lucrative the business is likely to be under their ownership.
- Company assets – A breakdown of company assets, both tangible and intangible, can help potential buyers visualise what’s owned by the business. Does your company own intellectual property? Does your company invest surplus cash into shares and/or stocks?
The more information that you provide during the business sale process, the more details that you will be able to share with potential buyers and therefore increase your chances of securing a new owner.
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
What is it important to retain accounting records to help sell your business?
Accounting records highlight the performance of your business, financial health, and how it is expected to perform in the future thanks to cash forecasts.
Evidence of growth potential – Cash flow forecasts can help assess the financial potential of your business and track scope for growth, a valuable talking point when conversing with interested parties. A business with evident growth potential, supported by a steady upturn in sales and consumer demand can help tip the scales in your favour in a competitive market.
Back up your claims with numbers – Provide evidence where potential buyers may be sceptical. If your business is on track to exceed targets or it survived the likes of the coronavirus pandemic with minimal disruption to trade, support your claim by using financial records to illustrate this.
Transparency can spark honest conversation - Maintain up-to-date accounting records, regardless of the performance of your business as this upholds high standards of transparency and can stimulate productive conversation amongst potential buyers.
This can provide a conversation gateway to address buyer concerns, such as lulls in trade, or Covid-19 distress that may have interrupted an otherwise exceeding track record. Failure to disclose such information to an interested buyer at an early stage could result in the deal subsequently falling through after the due diligence stage.
Due diligence checks are conducted as standard to back-up claims and expose red flags, such as legal action from creditors. These checks are performed by both parties to measure the level of risk associated with the business and the individuals involved.
Calculate the true value of your business – When conducting a business valuation, a business valuer will request to see company accounts to calculate how much your business is worth. This information must be kept up to date to accurately calculate the value of your business.
How can Selling My Business help sell my business?
At Selling My Business, we have years of experience in helping company directors find new owners for their businesses due to retirement, a change in personal circumstances or simply release money from their investment.
We strive to make the business sale journey easy which is why we work closely with accountants to access the relevant records on behalf of business sellers. Get in touch with a business broker at Selling My Business for a free consultation.