Wednesday 03/09/2016

Accounting Housekeeping for the Potential Sale

Molly Stinn, CPA helps you make sure you’re ready for the sale of your business- be it now or sometime down the road:

 

 

Mergers and acquisitions, succession planning, equity infusion. Each of these transactions potentially requires an outsider to take an up-close-and-personal look at your business. Your company may be on a fast, upward trajectory. Perhaps you chose your target market well and the economy has been with you. You’ve paid your dues and are now reaping some benefits, but you know there’s another step to get to. What should you expect when you open your door for interested third parties?

Oftentimes, businesses experiencing great growth have focused on factors outside the business – customers, sales channels, etc., while ignoring some internal infrastructure. You’ve meant to upgrade your accounting systems, but there’s no time for downtime. Perhaps your long-time bookkeeper is a good and loyal employee whom you’d like to keep around, so you have avoided recognizing that your growth has made your accounting a bit more sophisticated over the years.

You’ve been told that “getting an audit” is the ticket to an audience with outside investors, but is this really the place to start? My answer is no, not necessarily. Beginning with a little accounting housekeeping may be a better first step.

How good are your interim closes? Investors don’t deal in annual increments. They want to understand the ebb and flow of your business month-to-month. Today’s small business accounting systems don’t always require a hard close at month’s end. But now’s the time for you to impose this.

Are you sure your cut-offs are clean? Just because you’ve tightened up your month-end close doesn’t mean you are ensured of good p&l cut-offs. Investors will ask about seemingly minute deviations in margins. Getting your cut-offs clean will help you better analyze your profitability.

Have you fully embraced GAAP? An outside investor speaks one language – GAAP – and doesn’t care for translations. If you’ve taken shortcuts or have felt that certain rules don’t apply due to immateriality, you may want to think again.

How high’s your jump? Verticals matter. Can you dissect your accounting to understand profitability along product lines? Geographic regions? Other segments relevant to your business? If you can’t, potential investors may lose interest.

Each of these are things that an audit won’t help you sort out, but are critical to making inroads with potential investors. Over the years, we’ve worked with clients to help them do many of these things and more. By shoring up your accounting housekeeping, you’ll gain insight yourself and move your infrastructure forward towards fruitful dialogue with potential equity partners.

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