Know Your Numbers! Key Financial Information

Increase the Value of Your Business by Collecting and Organizing Key Financial Information

Key financial information is essential

Your business’ key financial information should be updated and readily available.

I recently met with two new clients: one was interested in a business valuation, the other wanted to sell the business. Both businesses are more than ten years old and employ about 15 people.

These businesses have one more thing in common: neither generates, on a regular basis, the essential  key financial information that would enable their owners to make sound business decisions.

Current Profit & Loss statements reflecting the operation of the business and Balance Sheets identifying assets, liabilities and equity are vital.

Instead, some accountants create brief Profit & Loss and Balance Sheets only once a year when they file tax returns. Only then do the owners find out how much money they made or lost during the year and how much they owe the government!

As a small business owner myself, I understand the necessity of generating and analyzing accurate, timely information.

To manage a business successfully, an owner needs an organized overview, called a dashboard, to display key financial information in order to see how the business is performing in real time.

Without this dashboard, generated quarterly or even monthly, you miss opportunities to make course corrections that could minimize financial damage or to capitalize on gains resulting from current business trends.

As my mother always says, “It’s too late … the horse has left the barn!”

From my professional perspective:
The lack of detailed financial information makes producing a business valuation or successfully selling your business much more challenging and time-consuming. The availability of financial, market, and operational data directly impacts any efforts to determine the true market value of a business. Clearly, the more detailed and timely your key financial information, the more accurate your valuation will be.

Business valuations

…provide a benchmark by which owners can measure the performance of their business against industry standards. Valuations enable and motivate business owners to make changes/investments that enhance performance and also provide the basis for future business strategies…and increase value for the eventual sale or transfer of the business. Additionally, business valuations are used by lenders making loans to businesses and buyers interested in acquiring businesses.

When it comes to selling a business, detailed financial information is an absolute necessity.

Buyers need this information. Their initial motivation to buy the business must be supported by the financial reality that the business will be a profitable investment. Buyers need to see the numbers, break down the expense accounts, and understand the seasonal flows of the business.

Solid financial information can seal the deal.

Put yourself in the shoes of a buyer.

A lack of key financial information creates questions and red flags in the mind of the buyer:
Is the current owner hiding something?
Am I missing something that will come back to bite me?
Do I have the whole picture?

This type of uncertainty may drive away a good buyer; at best, it results in a lower offer for the business.

As a business broker, this is my most valuable piece of advice:

Do yourself a favor that could put money in your pocket: institute processes and procedures to generate detailed financial statements on (at least) a quarterly basis.

Utilize one of the accounting software packages available that are easy to learn and operate, or seek the advice of your accountant.

Watching your numbers will give you the best chance to move them in the right direction!



1 Comment

  1. Jeffrey R. Murphy on November 18, 2014 at 9:03 am

    Funny cartoon! I hope all is going well, Dave!


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