PKF Francis Aickin Limited, Far North, New Zealand
view all of our services
24 Oct 2019
Most businesses have a 31 March balance date, so with the completion of the financial year end statements, it’s a good time to remember that the numbers count and that they play a crucial role in the business sale process.
If you decided to sell your business today, do you have your fingertips on the financial statements that would maximise the value in the sales process? Because this is the first item that that any potential purchaser is going to ask for. And first impressions count, as this is the first measure on which they will perceive the value of the business and whether or not to go any further.
Ensuring the financial information is accurate, compliant and ‘clean’ is critical. And if a purchaser is looking for finance, those financial statements are also going to be scrutinised by their accountant and their bank. Even if selling the business isn’t part of the short to medium term plans, it pays to be prepared if circumstances suddenly change.
Business owners themselves have one or a mix of health, trauma, life and income protection insurance, but what about the business? To many owners, the business represents their biggest asset and more than likely their retirement fund.
Some of the things that should be reviewed include a clean-up of the balance sheet, getting key performance indicators right for the industry the business operates in, separating income streams, reporting separately on gross profit centres, overhead reviews, trimming of expenses, documenting and strengthening internal processes and investing in other strategies to improve profit, growth and sales.
A timely reminder (lifestyle choices aside), a purchaser will pay a premium for a business that shows good historic profits, positive trends and future growth prospects.
Could all of this be done in 12 months? Probably not. We recommend this occurs over 2 to 3 years so that trends become apparent. Comparatives and forecasts are also scrutinized by potential purchasers, other professionals and the bank, so quality, reliability and accuracy cannot be over emphasised.
As a general rule, when looking to find the value of a business, two main methods will determine the price. The earnings based approach which will focus on the future earning capacity, and a market value approach based on recent sales of similar businesses. Both these methods rely on the financials and the forecasts.
It makes sense for business owners to want to optimise business value, and the financials should be reviewed on a pre-sale basis to identify areas that may need to be worked on. Get an indicative valuation of the business today and compare that to what you would like to sell it for and start working towards closing the gap.
At PKF we can help to determine the value of your business, do due diligence on your financials, benchmark your financials and key performance indicators to similar businesses and help to develop strategies to close the gap. So if you’re looking for a Chartered Accountant to help you prepare or understand your financial statements or a Business Advisor to help you successfully grow your business, contact PKF and speak to one our experienced team members today!
For more information on how we can help your business, get in touch