Buying a business is risky, and buyers must do all their due diligence when making an acquisition. Every buyer expects to earn a profit after buying a business. That is why they need financial records to assess the earning potential of a company.
Are you planning on selling your business? Invest in the deal's success by having all financial documents ready—it'll create a more professional impression and boost credibility. Learn what paperwork you need to gather for potential buyers, courtesy of ESL Advisers!
Importance Of Preparing Financial Plans
By preparing and organizing financial documents properly, you can give potential buyers a glimpse at your company's true worth. In doing so, you can come up with an attractive offering price and identify any areas of improvement or resource deficits that may cause concern for investors.
An organized bundle of documentation showcasing positive past revenue trends is essential in presenting yourself—and the business—as competent entrepreneurs worthy of investment consideration. Ultimately this will position both parties well while reducing stress throughout negotiations!
Financial Statements Needed For Selling A Business
Financial records of your business are not just meant to show its profitability. You also need financial information to get an accurate valuation for your company. With that said, here are all the key financial records you should prepare when selling your business:
Financial Statements Of The Past Three Years
Financial statements are one of the most basic financial records you must have when selling your business. Your financial information should contain the following records:
Income statement (profit and loss statement)
Cash flow statement (money coming in and out of business)
Balance sheet (shows assets, liabilities, and equity)
You may require the help of a bookkeeping expert to arrange the records mentioned above. ESL Advisers can refer you to the relevant experts to help you organize your company's financial statements.
Your company's tax returns show the potential buyer that your business isn't liable for federal or state taxes. Not to mention a tax return can add official backing to your company's financial performance. A potential buyer will expect the values shown in your company's financial records, such as profit and loss statements, to be reflected in your tax returns.
Organizing and providing tax returns of at least three years when selling your business is best. Also, make sure you compile the federal and state tax returns separately, making them easily distinguishable for the buyer.
Record Of Your Company's Assets
Every business owns some tangible assets, such as its inventory or equipment. These assets add to the overall valuation of your business, so make sure you have a record of your company's tangible assets and their value before listing them for acquisition.
Apart from the purchase price of the assets, you may also need the current value of each asset to show their worth at the time of sale. That is where an accountant comes into play, and you should involve an accounting expert when recording your company assets.
It is nearly impossible to ensure that your company will earn the same amount of money it makes after the acquisition. Therefore it is essential to explain any potential financial adjustments that may cause a change in its overall financial figures post-merger. This record is complex to produce; therefore, it is best to get it created by a financial expert to ensure accuracy.
What Are Other Documents Needed To Sell A Business?
Apart from the financial records, you may need to provide other documents that include:
Sales pipeline information
Contracts with clients and vendors
Employee contracts or non-compete agreements
Insurance coverage documents
Permits and licenses
Agreement of sale