How to Improve Your Financials to Increase Business Value
Discover how to enhance financial performance, grow sales and profits, and organize essential financial statements and documents to prepare your business for sale and attract buyers. Excerpted from BizBuySell's Guide to Selling Your Business.
Transcript:
To strengthen the financial condition of your business, work with your management team and accountant to consider the following actions.
Optimize accounts receivable by promptly following up with past due invoices. Negotiate terms for accounts payable. Reduce expenses by eliminating unnecessary purchases. Reassess inventory needs.
Consider seeking a small business line of credit to preserve cash flow. To develop sales and profits, assess how the sales and profits of your business have trended over the past 3 years using the sales and profit growth chart in the digital toolkit.
Analyze whether there are revenue sources that could be developed. Identify purchase patterns or successful marketing campaigns you may be able to build upon or replicate. Determine if you can reduce cost of sales and therefore increase profit margin.
Reassess pricing, increasing margins or rates on your high demand unique offerings and adjusting prices.
Look for areas in your business where you have capacity to grow. Identify which products or services deliver the lowest and highest profit margins. Develop streams of recurring revenue, automatically repeating sales or for service businesses, service contracts.
To present necessary financial statements for the past 3 years, work with your CPA to prepare the following. An income statement, also called a profit and loss statement.
A balance sheet, which presents the financial condition of the business.
A seller's discretionary earnings SDE statement, which recasts the income statement into a proforma estimate of how much money the business generates annually for the benefit of its owner.
Use the business sale documentation checklist in the digital toolkit along with advice from your attorney and broker, if you are using one, as you compile the necessary information.