Samantha had found just the right buyer. It really was kind of a miracle as this statewide business marketing consumables for national firms was not for just anyone. But Simon was perfect. He was living in central NM and had some experience in the industry, could work out of his house, while managing his invalid Mother. Simon had enough for the down payment and great credit for securing the loan. Why was it not all coming together…
Just like a house sale, the sale of the business requires the right business and right buyer in the eyes of the bank, lending institution. Samantha had a CPA who filed the taxes and was honest in all her dealings. The company clearly had cash flow that in the current year was 30% higher after only 11 months. Simon saw this increase and was willing to pay a premium for it. The bank was not.
Bankers want tax returns, current year financials, sometimes appraisals of the business and the furniture, fixtures, and equipment. The current year can influence them but may not be used in calculating what they are willing to lend. To sell at the premium, Samantha may have to finance more than she wanted to.
Further, Samantha could not produce a balance sheet representing the accounts receivable. Certainly she had accounts receivable but it was managed online with the national firms. The CPA had never represented these or the payables. Both were very short term, yet the bank was unsettled with this seemingly hole in the accounting.
Consider how your accounting can better represent your business. You may be very honest but not have the right reporting systems.