George has a great business, developed over 20 years.  He has a brand that consistently generates new and repeat business.  Now it is time to retire and a buyer for the business has been found but due diligence is not going well.  George used a bookkeeper and an accountant but himself is not very knowledgeable and the professionals perhaps not as excellent as they might be.  Plus, there were those cash transactions that were never recorded.  George does not understand why the buyer is asking so many questions.  Isn’t it evident that taxes have been paid, income has been generated, staff members stay?  Why are they not accepting the cash transactions in support of the price for the business?

Well no.  It is not enough.  While some buyers just take it all as evident and move on with a sale.  Other buyers, perhaps the smart ones, won’t let gut reaction be enough to persuade them.  They must see more and it is not necessarily unreasonable.

These are just a few things that a business owner can do to ensure satisfying the buyer.

  • Learn about bookkeeping techniques enough to understand and speak to when asked.
  • See, understand, and if necessary challenge the tax return before it is filed, knowing it ties back to your profit and loss statements and balance sheet.
  • Minimize the discretionary expenses that are run through the company and ensure you can demonstrate that these are indeed personal.
  • Record all transactions, including those in cash.
  • Don’t take unrecorded cash income and then expect a buyer to believe it was there.
  • Keep good records of equipment recording date of purchase, maintenance done, location,  in-date warranties, age, etc.  This includes items that have longevity but may be expensed rather than depreciated.
  • Keep inventory, preferably with a tie in from point of sale, to inventory, to sales, and removal of outdated items.

It is a shame when a good business does not sell or sells for too little because of bad records.