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 by applying a multiple to its sustainable profit, often EBITDA or adjusted net profit. The appropriate multiple depends on factors including growth, recurring revenue, customer concentration, management strength, owner dependency, market conditions and buyer demand.
Determining what your business is worth involves more than applying a simple formula. Use our Business Valuation Calculator to obtain an initial valuation range, or read our simple business valuation guide to understand the factors buyers consider.
How long does it take to sell a business?
Selling a business in the UK typically takes 12 to 18 months from initial preparation to completion, although the formal sale process itself may take around 6 to 9 months once the business is ready to go to market. The exact timeframe depends on factors such as how prepared the business is, buyer demand, the complexity of the transaction, due diligence and how quickly legal and commercial terms can be agreed. Preparing financial information, contracts and other key documents in advance can help reduce delays and make the sale process more efficient. Read our complete business sale timeline to see what happens at each stage.
When is the best time to sell a business?
The best time to sell a business is usually when it is performing strongly, has clear growth potential and you are not under pressure to complete a deal. Buyers are typically more attracted to businesses with stable or rising profits, reliable financial information and credible opportunities for future growth.
You may be in a stronger position to sell when:
- Revenue and profits are growing or consistently strong.
- Financial records are accurate and up to date.
- Future growth opportunities can be clearly demonstrated.
- The business is not overly dependent on you.
- An experienced management team is in place.
- You have prepared for the sale well in advance.
Market conditions can also influence buyer appetite and valuation. Sector growth, access to finance and competition between buyers may support stronger deal activity. However, the performance and sale-readiness of your business are usually more important than trying to identify the perfect month or year to sell.
Ultimately, the right time to sell is when both you and your business are ready, and the company can demonstrate sustainable performance, manageable risk and future value to potential buyers.
Use our Exit Readiness Assessment to assess how prepared your business is.
Do I need an adviser to sell my business?
You are not legally required to use an adviser to sell your business, but many owners appoint an experienced M&A adviser to help manage the process. An adviser can prepare the business for sale, identify and approach suitable buyers confidentially, coordinate negotiations and support the transaction through due diligence.
The right adviser can also help create competitive tension, protect your time and reduce the risk of avoidable mistakes. Read our guide to choosing the right business sale adviser to understand the different types of support available.
How do I prepare my business for sale?
Preparing a business for sale involves strengthening its financial performance, reducing risk and making sure it can operate successfully without heavy reliance on the owner. Buyers will also expect accurate financial records, clear contracts, organised documentation and evidence of future growth.
Preparation should ideally begin well before approaching the market, giving you time to address weaknesses that could affect value or delay the transaction. Use our Exit Readiness Tool to assess how prepared your business currently is.
How is confidentiality protected during a sale?
Confidentiality is protected through controlled information sharing, anonymised buyer approaches and non-disclosure agreements. Potential buyers usually receive limited information at the start of the process and must sign an NDA before commercially sensitive details are released.
Prospective buyers should be assessed before receiving further information, with documents shared gradually according to their level of interest and credibility. A well-managed process also allows the business owner to retain oversight of who is approached and what information is disclosed.
What documents do I need to sell my business?
The documents needed to sell a business commonly include financial accounts, management information, forecasts, customer and supplier contracts, employment records, tax information and evidence of intellectual property ownership.
Buyers may also request details of property, insurance, legal disputes, regulatory matters and company ownership. Organising this information before due diligence begins can reduce delays and help maintain buyer confidence. Our Business Sale Due Diligence Checklist explains the main information buyers are likely to request.
What’s the quickest way to sell a company?
The quickest route is usually a sale to a buyer who already knows your business, such as a competitor, a supplier or your management team, or to a buyer with funds ready. Even then, legal work and due diligence normally take two to three months. Speed usually costs money: with only one buyer at the table there is no competition on price. If timing matters, tell your adviser at the start so the process can be built around it.
Can I sell my business online?
You can list a business on an online marketplace, and for very small businesses this can work. For businesses with a value above around £2m, public listings carry risks: staff, customers and competitors may spot the sale, and the buyers who respond are rarely the best fit. A managed process that approaches selected buyers confidentially usually produces stronger offers and protects the business while it is for sale.
How can I increase the value of my business before selling?
You may be able to increase the value of your business by improving sustainable profits, developing recurring revenue and reducing reliance on individual customers or the owner. Buyers also value capable management teams, reliable financial reporting, scalable operations and clear opportunities for future growth.
The earlier you identify the factors affecting value, the more time you have to make meaningful improvements. Use our Business Valuation Calculator for an initial indication of value and our Exit Readiness Tool to identify areas that may need attention.