What is so important about Financials?
The financial information, is absolutely critical to the appraisal process and to determine saleability of nearly every business. It must be accurate, up to date and easily understood. It must be prepared professionally on company letterhead or spread sheet signed by the Accountant doing the work and responsible for the facts and figures. Anyone making a decision or giving an opinion on the sale price of any business requires factual information and Tax Returns. These figures such as Profit and Loss, Balance Sheets, Depreciation Schedule, Wages Summary / Payroll must be correct, justifiable and compared with other facts such BAS (Business Activity Statements)
A good bookkeeper is very important to keep financials up to date and monitor cash flow. How do you know if the business is making any money if you do not have this information? What are your Key Performance Indicators (KPI’s)
Accountants do a fantastic job with your financial information and are usually really great at preparing and minimising your tax for your annual tax returns. They also offer advice and guidance during the year that can make your business more profitable. Always money well spent and important that you have good communication and totally understand what they are telling you when you have your meetings. Do not feel intimidated or insecure because you do not know or understand Accounting terms and financials. If you knew what they do, you would not need them. The sooner you take the time to learn and understand your business financials the far greater chance you have of making more money and a having a successful business. Insist on detailed explanations and ask questions until you fully understand.
Business Valuer or Appraiser – Obtains all the information we can get in regards to determining the market value of the business. We require all the financials that are then normalised to reveal the net profit of the business. That figure is then capitalised anywhere from .75 to 2.75 times in most small business to uncover the value. The capitalisation rate is the Risk factor and there are literally 100 things that determine the risk. That value is then compared and checked with 2 – 3 other methods to insure that the value is fair and reasonable. The Return On Investment is then calculated showing an actual return for that business for seller or buyer.
The purchaser only gets the future earnings of a business not the past earnings, so it is vital to have good financial information which is authentic and verifiable. It is all about ensuring that to the best of your knowledge and integrity the business will continue to generate the income stated ongoing.