Patrick opened his vitamin business 15 years ago. Now he has it listed for sale and the buyers are asking questions. “They are questioning my integrity????” Patrick was outraged….
How could they suggest? These are some things that the buyers were seeing and becoming more reluctant along the way.
These are some things that Patrick might have done differently:
- Report and adequately provide for unusual practices: If he was going to self-insure, he might have developed a fund to cover the risk of all damage and loss, comparable to what insurance companies do – just how much extra would the buyer need to spend to replicate that OR add to routine expense for additional coverage.
- Make certain insurances and taxes are up to date: Last year when he had only one employee, there was no requirement for worker’s compensation insurance. Now, with two employees, there is a requirement. Sales tax reporting should equate to revenue.
- Clean up inventory: Inventory is in the warehouse that is 3 – 10 years old. Likely a new owner does not want this inventory and it is better to have it gone before they visit or perhaps boxed away and so marked.
- The front office is full of Patrick’s collection of stuffed fish. It makes him smile every day but the buyers???? – not so much.
- Clean up receivables: When looking at receivables, though the buyer is not going to take on receivables, it appears that 30 percent of the clients pay after 90 days, making working capital needs greater than most buyers can absorb and likely the clients are less likely to pay.
- Report cash received for at least a year: The buyers are asked to believe that 30% of the revenue reported is not reported on state or federal tax returns.
- Dust up: The shelves with some of the inventory even looked old as the bottles of pills had a layer of dust on them.
- Clearly demonstrate the financials for just this business for sale. It is often that an owner has a primary and secondary business, both operated out of the same financials and tax returns. Even so, keep separate charts of accounts for each business. Ensure the tax preparer, if rolling up two businesses into one for tax purposes, has backend files for each business that clearly demonstrates the totals in the tax return.
These are merely the start of being neat and tidy. Are you?