What Buyers Look for in a Company’s Financials
This week on In Process, we're kicking off a series of podcasts about what businesses and their chief executives should be thinking about in order to get themselves to a point where they're ready to be sold.
“Typically, it's not until businesses actually to the point where they think, ‘It'd be really great to sell’ that they suddenly realize, ‘I'm not attractive to a buyer,’” says host Evelyn Ashley. This series, which will lead up to our coinciding event Prepping the Princess, will touch on the issues that business leaders should keep top-of-mind before an exit—even if that exit is years away from fruition.
Joining us to discuss the financial and tax considerations were Raygan Evans, Zack Leder, and David Kloess, accountants at full-service Atlanta-based accounting firm Bennett Thrasher. Their sentiments on tax and financial preparation before a sale echoed what we at Trusted Counsel often see on the legal side: businesses often leave money on the table when they wait until they’re ready to sell to consider what their buyers want.
“When they start, the most important thing is revenue and getting their concepts and products in market. That's where the energy ought to be—in building the business,” says Kloess. “Often, the accounting records are really not put in place, the processes aren't put in place, and it is a cash-driven business. They look at the bank statement, and then they're required to file a tax return, so that's the time they scramble. We laugh at the shoe box client. We've all seen him in our careers; it's a shoe box of stuff just to get the taxes filed.”
But even business owners who feel they have their financials under control would be wise to call in outside help to find issues before they engage in the selling process.
“The smarter clients are the proactive ones that get us in when we can do some planning on the front end to make sure that, as they start discussions with potential suitors, the structure of the deal is going to be the most tax advantageous forum and accomplish goals for both sides,” says Leder.
When it does get to be time to sell, sophisticated buyers usually to require audited financials, which can be a big step for companies who primarily have worked with CPAs on just their taxes. But having audited financials ahead of time can send a message.
“Audit just answers a lot of questions for a buyer—thatthese guys are serious about their reporting,” says Kloess. Coming to the table with organized financials and a set of processes already in place makes a difference—one Kloess, Evans and Leder have all seen transpire firsthand.
“From a GAAP [generally accepted accounting principles] basis financial and a proper accrual basis financial, they may not be where they think they are. This may not be the time to sell,” says Evans. “They may need a few more years to get where they thought they were.”
Listen to the full podcast in the player below or subscribe on iTunes to hear Kloess, Evans and Leder get in-depth on how a company can strengthen its financial leverage before approaching a sale. For more about Bennett Thrasher, visit their website at btcpa.com.
If you liked this podcast or want more information about making a business attractive to buyers, consider requesting an invitation to our upcoming event, Prepping the Princess for the Party: Is your business ready to sell?, on October 12 at 6 p.m. The event will host business owners and C-level executives for a panel discussion on what it takes to get top dollar for your business. For more information or to request an invitation, visit PreppingthePrincess.com.