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?
At Entrepreneurs Hub, we talk about five key areas that make the difference between success and failure when selling your business. Read more…
How much can I sell my business for?
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 my business?
The timeline varies depending on the complexity of the deal and how ready the business is for sale. On average, the process takes around twelve months – sometimes less, sometimes more.
While preparing your business for sale, Entrepreneurs Hub conducts in-depth research to identify potential acquirers. You’ll have the opportunity to review and approve this list before we make any approaches. Once the business is fully prepared – often the most time-consuming step, we begin marketing it. Typically, you’ll start seeing initial interest within a few months, with follow-up meetings happening shortly after.
As these meetings progress – coordinated and facilitated by Entrepreneurs Hub, you’ll begin receiving initial offers. At this stage, we’ll help you assess the strategic fit between your business and potential buyers. When you decide to move forward with an offer, an exclusivity period begins, during which the acquirer conducts Due Diligence (DD).
The DD phase typically lasts two to three months, depending on the complexity of your business. Once complete, the sale is finalised, and you’ve successfully sold your company.
How do I sell my business quickly?
Selling a business quickly is possible, but speed shouldn’t come at the expense of value or deal security Read more…
When is the best time to sell?
Selling your business is a major milestone, and the start of an exciting new chapter, whether that means new ventures or a well-earned retirement.
In our experience, the best time to sell is when you don’t need to – when your business is performing well – not necessarily tied to the calendar. That said, timing can still play a role.
Timing the Market
Strong economic conditions, sector growth, and buyer confidence boost valuations. Don’t wait for a “perfect” market – a well-prepared, well-performing business sells in any climate.
Plan Ahead (12–18 Months)
The best outcomes come from early planning: clean financials, solid forecasting and growth potential.
Spring & Autumn Are Active Periods
The M&A market is typically busier in spring and autumn while summer and winter tend to be slower due to holidays and year-end distractions. However, the unpredictability of deals and negotiations makes this hard to target. We do deals all throughout the year – the key is to work with someone who can keep driving the deal forward whenever it happens.
Financial Year- End
Selling your business well is a long process and aiming for your financial year-end milestone is a virtually impossible task. But it is worth bearing your financial year in mind as buyers will want to review the most up-to-date accounts available.
The best time to sell is when your business is ready, and you are too. With the right preparation and positioning the right timing follows naturally.
Can I sell my business online?
Yes, you absolutely can sell a business online. Many platforms specialise in connecting business sellers with buyers. Read more…