Selling Your Business? Step 1: Develop Strong Finance and Accounting Systems

In our Whitepaper, 7 Essential Steps to Maximizing Value When Selling Your Business, Step 1 is Develop Strong Financial and Accounting Systems. If you want to sell your business for a profit, you have to be profitable! However, potential buyers are not just looking for a profitable business; they want to see clear evidence of that profitability that creates transferrable value. That’s where financial and accounting systems come in.

Financial statements pull out meaningful insights that can tell the story of a business’s performance. Transparency is key — buyers want to understand what has happened, how transactions unfolded, and any trends or anomalies that need explanation. But beyond that, it’s about creating a story that explains the "why" behind the numbers.
If you want to sell your business, now is the time to start shoring up your financial systems.

Financial Records that Buyers Will be Looking for 

Your financial records should clearly document your business’s financial health. When looking to sell your business, be prepared to share the past 3 years of financial statements.
Statements you will be asked to provide include:

• Balance Sheets
• Profit and Loss Statements
• Cash Flow Statements
• When buyers look at your financial records, they are looking to see evidence of your profitability.

Other information that buyers will ask for include:

• Do you have a sales and marketing plan?
• Do you have detailed budgeting? Do you analyze variances of budget vs actual.
• Do you have a long term and strategic plan?
• Do you do cash flow projections? Rolling forecasts?
• How does your income compare year over year for the last 3 years?
• What is your Cost of Goods sold? Gross margin?

Diversification of Customers and Vendors

In addition to financial statements, buyers will want to see customer and supplier lists. While evaluating a business, it's essential to identify potential risks, especially those tied to supply chains or customer dependency. For instance, if a business relies on just a few major customers or suppliers, this can be a risk.

If this sounds like your business, you can take steps now to improve the business’s valuation over time:

• Diversify Revenue Streams: Relying on a single source of income can be risky. Look for multiple revenue streams to ensure stability.
• Diversity your supply chain by looking for additional suppliers.

Outside Assessment Adds a Layer of Credibility

Having someone independently review your financial systems and practices adds a layer of credibility, and it can:

• Provide advice for how to ensure the company’s financial systems and practices are robust and can support the company’s growth
• Ensure an appropriate level of oversight of operations that support executive level decision making
• Support efficient and effective management across the firm, including strategic communication, organization design, appropriate levels of working capital, and capital structure management as well as operational management.
• Prepare your business to sell for a maximum value

Financials Reports: The Scorecard and the Roadmap

In the end, selling a business is about more than just presenting numbers. It's about telling the story of the company’s financial health, performance, and potential for growth. Financial statements, when done right, are a roadmap for buyers, showing them where the business has been and where it could go with the right investments. Whether you’re planning to sell in the near future or just want to ensure your company’s books are in order, detailed, accurate, and transparent financial statements are a key to unlocking your business’s value.

Are you ready to take your financial statements to the next level and set your business up for success? Learn more about Cathedral's M&A Consulting Services here.

Start today by scheduling a complimentary discovery call with us.