When you’re gearing up to sell your business, having your financial house in order is crucial. Not only does it make the process smoother, but it also instills confidence in potential buyers. Let’s walk through the essential financial documents you’ll need to prepare before putting your business on the market.
Profit and Loss Statements
First up are your Profit and Loss (P&L) statements. These are the backbone of your financial story, showing your business’s revenue, costs, and expenses over time. Buyers will want to see P&Ls for the past three to five years[1][4]. These statements give potential buyers a clear picture of your business’s profitability and growth trends.
Balance Sheets
Next, you’ll need to prepare your balance sheets. Think of these as snapshots of your business’s financial position at specific points in time. They list your assets, liabilities, and owner’s equity, giving buyers insight into your business’s overall financial health and stability[1][2].
Cash Flow Statements
Cash flow statements are another critical piece of the puzzle. They show how cash moves in and out of your business through operations, investments, and financing activities. This document is vital because it demonstrates your business’s ability to generate and manage cash – a key concern for any potential buyer[1][2].
Tax Returns
Your business tax returns for the past two to three years are also essential. These documents provide verification of your reported income and expenses, and they show that you’re in compliance with tax regulations[4][5].
Year-to-Date Financials
Don’t forget to include your most current financial information. A year-to-date (YTD) comparison P&L statement allows buyers to see your most recent performance and compare it to previous years[4].
Bank Statements
While not strictly a financial statement, your recent bank statements (typically the last two to three months) are often requested by buyers. These help verify the information in your other financial documents and provide a real-time view of your cash position[2][4].
Additional Documents
Depending on your business, you might also need to prepare:
- An asset list
- Accounts receivable and payable aging reports
- Any outstanding loans or debt documentation
- A statement of seller’s discretionary earnings (SDE)
Remember, the goal is to provide a comprehensive and transparent view of your business’s financial health. The more organized and detailed your financial documents are, the smoother the sale process will be.
It’s also worth noting that while you should have all these documents ready, you don’t need to share everything upfront. Typically, you’d share P&L statements before an offer is made, while more detailed documents like tax returns and bank statements are usually shared after an offer is accepted[4].
Lastly, consider having a Certified Public Accountant review your financials. Their professional oversight can add credibility to your documents and potentially increase your asking price[5].
Preparing these financial documents may seem daunting, but it’s a crucial step in selling your business. Not only does it make your business more attractive to potential buyers, but it also helps you understand your own business better, potentially uncovering areas for improvement before you sell.
To discuss your business and preparations
Citations:
[1] https://acquira.com/documents-business-seller/
[2] https://www.uschamber.com/co/run/business-financing/financial-documents-needed-when-selling-your-company
[3] https://raincatcher.com/paperwork-needed-when-selling-a-business/
[4] https://morganandwestfield.com/knowledge/preparing-financial-statements-when-selling-a-business/ [5] https://www.bizbuysell.com/learning-center/article/documents-and-information-required-for-selling-a-business/
