Records that Convince Business Buyers to Pay Top Dollar
There’s an old adage about the ABCs of record keeping: They are a) knowing what to keep b) knowing what to shred and c) knowing the difference between A and B. In other words, don’t keep a record unless the record is earning its keep. That’s good advice as far as running a business is concerned. When you prepare to sell a business you’ll find investors do ask for a lot of records!
Uncertainty is the greatest killer of price. The more uncertainty there is in the mind of your investor the greater his resistance to price. It’s your job as the seller to remove as much of the uncertainty as you can. Proper records go a long way towards reassuring your investor whether that investor is a private equity firm, an institutional investor or your own management (in MBOs it’s often the bank providing the finance that gets the most reassurance from these records).
We’ve put together a list of some of the documents commonly requested by buyers. Don’t worry if this list looks scary and unachievable. It’s not as difficult as it may first appear. Use the contact form below if you need assistance and we can advise.
- Computerised Management Accounts: This may sound obvious, but many small businesses keep their records on paper – whether in a neatly organised filing system or on little scraps in untidy piles. To the buyer, paper represents easy loss of data, lack of backup ability, challenges with analysis and inability to extract the intelligence that could lead to business improvements.
- Pertinent data: Even with computerised accounts, buyers like to see that management have a clear understanding of the business:
- the profit centres;
- how each line/product is performing;
- breakdown of sales by salesperson, by customer, by sales office / county ;
- performance of online vs offline and cost of acquisition of customers in both locations
...you get the picture.
These questions are likely to arise during due diligence, so if you don’t already have that data it’s worth preparing them in advance rather than on demand. The more you can demonstrate that you’ve got a keen pulse on the business, the better.
- Annual Accounts going back at least three years, ideally with Balance Sheet and P&L statements showing a healthy profit and growth. If yours is a “Lifestyle” business and all profits are not easily discernible from the statements, it’s worth starting to make the transition now and planning your exit for a little later… or getting help to recreate your accounts for an investor’s purpose rather than the tax man’s. Contact us to find out how.
- Planning and cash management: A written business plan, complete with growth strategies and targets and business risk analyses; cash flow projections; working capital analysis etc., all make for a very good impression and, for some buyers, form compulsory viewing.
- Accounts Receivable and Payable: Are customers given too much time? Is collection of debts efficient; are the aging reports properly followed up and acted on? Are maximum discounts and facilities being used with suppliers? Do you regularly review prices and compare across suppliers? And do you have records proving all this?
- Legal, environmental and tax documents: Copies of all company, legal, environmental and tax documents are essential. These include original company registration papers, company secretary records of director meetings, changes in shareholding etc. (for registered companies); contracts with suppliers, service providers, bank/s, customers, landlord/s, employees; valid Energy Performance Certificate ; VAT returns, PAYE and other HMRC related records etc.
- Operating Documents: The only information that’s important in some hierarchies is who knows what. Investors prefer to not rely on staff memories. They want to see what information and knowledge has been recorded. Proper manuals on operational procedures, quality control, health and safety, routes to new customer acquisition, schedules for facility and equipment checks, for example, say a lot about how your company is run as do records on employee recruitment, training and retention.
Not all of the above documentation is required in every case. Hornblower Business Brokers can advise you on the documentation you need to sell your specific business. Please use the contact form below to get in touch.
Bio: The article was contributed by Clinton Lee, founder of UKBB.