Don’t Cook the Books! Financial Areas to Address when Selling a Business
Many business owners don’t manage to sell their business first time – or for as much as they’d hoped – because they fall victim to a number of pitfalls. We want to see you succeed so we’ve been raising awareness of these potential issues through a series of blogs, including How to identify your S.P.O.F.s (single points of failure) if you’re selling a company and How to get your contracts in order before you sell a business.
Selling a business for maximum value involves a fine blend of ingredients and methods: strategic preparation, accurate valuation, targeted marketing to prospective buyers, careful due diligence, and smart negotiation. One thing the recipe for success doesn’t include is cooking the books. Underhand financial practices will devalue your business – or even make it unsaleable.
So, you’ve been approached by a potential acquirer and they’ve asked to see your accounts…
Do you feel confident that you can explain the financials of your business to an acquirer in a way that will not only answer their queries – but also shows off what a hot proposition they’re looking at?
Bad organisation, antiquated or patchy processes, as well as a time, skills or resource deficit; these are all genuine reasons why some business owners find it hard to evidence the current financial state of their business in a comprehensive and compelling way.
Don’t worry! Panic can lead to a temptation to ‘cook the books’ in an attempt make financials appear more attractive to potential buyers – when all that’s really needed is a little guidance, attention to detail, and good preparation.
Areas to address
Honesty always pays. Here’s an idea of which red flags acquirers will be looking out for, so you can compile an accurate set of financials that transparently represent your business and make it more saleable…
Lack of/inadequate accounting, reporting, budgeting and forecasting processes – even if the numbers aren’t consistently strong, robust processes mean your buyer knows exactly where they stand and that there aren’t any hidden issues lurking
Inconsistent data – if one record states one sum, and another something different, your buyer will be confused or even suspicious, so make sure data is consistent across the organisation
Suppressed profits – most buyers will calculate value on the average sustainable profit over a 3-year period so don’t suppress your profits in order to reduce your tax bill because it won’t pay off when you come to sell
Undervalued or overvalued stock and work in progress – get an independent review of your business from an external advisor who can help you evaluate the true worth of your business, taking into consideration ALL value drivers/barriers (physical assets, monetary and otherwise)
Issues with corporation tax, PAYE, and VAT – these could mean future fines or a big bill for the buyer so make sure you can demonstrate there aren’t any gaps by keeping all the filing of returns and payments up to date
Directors’ private expenses running through the business – keep monthly management accounts wherever possible and remove discretionary expenses not related to the company
Undeclared cash payments to the company – absolutely everything must be recorded and accounted for
No investment in auditing – those who audit are viewed by acquirers as more trustworthy (and therefore worth more) so get your books reviewed professionally each year, even if audited statements are not the norm in your industry
Poorly trained or ill-informed accounts staff – whether in-house or outsourced, make sure the people in charge of the books are 100% aware of what’s happening in the business, they’re following all processes, and they can explain discrepancies correctly
As corporate finance experts, we’ve seen all sorts of financial scenarios disrupt or delay a successful sale. If your numbers don’t add up, a buyer might not trust you and is likely to get cold feet. They might even inspect other areas of your business more closely and find other reasons not to buy.
We always advise those who are serious about selling a business to have a ‘dry run’ on the financial due diligence. Ask your accounts team or accountant to prepare fully audited accounts. That way, you’ll be more than ready when the ideal buyer turns up.
Worried your financials won’t stand up to scrutiny from acquirers? Not sure what’s involved in due diligence? Entrepreneurs Hub will give you professional advice on selling a business and help you get exit ready. Sell your business the right way – and for maximum value – in the safe hands of our experts. Contact us in confidence to find out more.
Download your free copy of our popular eBook SELL – The 30-Minute Guide to Preparing Your Business for Sale and take a look at our Insights & Resources page for more tips and hints.
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FAQs – Selling Your Company
How do I sell my business in the UK?
Selling a business in the UK typically involves preparing financial information, obtaining a valuation, identifying suitable buyers and negotiating the terms of a sale. Most owners work with an M&A adviser to manage the process confidentially, approach qualified buyers and maximise the value achieved.
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
What is my business worth?
A business is typically valued using a multiple of its profit, usually EBITDA or adjusted net profit. The multiple depends on factors such as growth potential, recurring revenue, customer diversification and management strength. Professional valuation provides a realistic price range and helps position the business effectively for buyers.
Determining your business’s value is more than just calculating a number it’s complex with key factors, that said the basic equation is actually quite simple. Read more…
How long does it take to sell a business?
Selling a business in the UK typically takes between six and nine months from preparation to completion. The timeline depends on business readiness, buyer demand and the complexity of due diligence. Early preparation and clear financial reporting can help shorten the process.
When is the best time to sell a business?
The best time to sell a business is when it is performing strongly, growth prospects are clear and you are not under pressure to sell.
Business owners often achieve the strongest outcomes when:
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Profits and revenue are growing
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Financial records are clear and well prepared
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There is visible future growth for buyers
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The owner has planned the sale 12–18 months in advance
Market conditions can also influence valuations. Strong buyer demand, sector growth and favourable economic conditions can increase acquisition activity, but a well-prepared business can attract interest in most markets.
Deal activity often increases during spring and autumn, although transactions complete throughout the year. In practice, preparation and business performance usually matter more than trying to perfectly time the market.
Ultimately, the best time to sell is when both the business and the owner are ready, with the company positioned to demonstrate strong value to potential buyers.
Do I need an adviser to sell my business?
Many business owners choose to work with an M&A adviser to manage the sale process. Advisers help value the business, approach qualified buyers confidentially and negotiate terms. This structured approach can increase the likelihood of achieving a higher value and a successful transaction.
How is confidentiality protected during a sale?
Confidentiality is protected through controlled information sharing, anonymous buyer approaches and strict non-disclosure agreements. Potential buyers receive limited information initially and must sign an NDA before any sensitive details are released. Business owners approve prospective buyers and maintain visibility over all documentation throughout the process.
How do I value my business before selling?
Valuing a business before selling usually involves analysing profitability, identifying valuation multiples and assessing key value drivers such as recurring revenue and customer concentration.
What’s the quickest way to sell a company?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
What’s the best way to sell a business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…