No One Will Buy Your Company Without This26th April 2017
Several years ago I was involved in the sale of a business, which involved a very lengthy due diligence process.
Why did it take so long? Because the accountants were desperate to find evidence of financial weakness they could use to push the price down.
They spent weeks examining every financial record in detail, but they couldn’t uncover any ammunition at all.
Eventually the sale went through at the full price, and the buyer asked us to stay on – ‘to keep up the good work’ – as we were responsible for managing this company’s accounts.
But I’m not mentioning this just because it’s nice to recount success stories ;-)No, it’s really because I want to talk about the importance of good governance if you ever want to sell your business. This is no quick-fix solution just before a sale, but more of a long-term investment you need to think about years before.
When I decided to sell my last car, I made sure it had a good deep clean to get it ready. But much more important was the full service history from a main dealer, and the annual MOT certificates showing that the mileage was genuine and that the car had been roadworthy and well-taken care of over several years.
It’s very similar with a business. Just instead of an MOT and service history, you need to show great financial records.
You need to be able to demonstrate you’ve been running a tight ship, with no sinister financial details lurking in the background. That means no personal assets on the balance sheet, no unpaid debts, and no old stock or machinery that should have been sold off….
…No funny numbers to cover up your true financial position, and absolutely no mistakes in your accounts.
Your records need to prove that whenever a third party has looked into your business, you’ve come out smelling of roses. So you need to be ready at all times for an audit report, or a VAT or PAYE inspection, with full records that are easy to access.
Consistency, or your ability to demonstrate that you have delivered strong results year-on-year, is a very important element of all this. Any buyer will want to think they can continue where you’ve left off.
Of course, the other thing any buyer will want is a keen price. And if their due diligence throws up anything even remotely suspect, they’ll be expecting a reduction – assuming they don’t walk away from the deal entirely.
This is crucial if you’re even considering selling your business in the next few years (and equally crucial if you “just” want a company that’s run professionally).