The main goal of starting a profit-oriented business is financial gain. Therefore, when you are buying a business that already exists, you should be very keen of the financial statement of the firm. This will give you a clear idea of whether the business is worth investing in or not. As the business owner, you should have the financial records ready so that you know how much you will dispose of the business and how much profit that you will make. Below are some of the factors that you should have in mind when recasting your business.
What is recasting and why is it important?
Most of the businesses are managed in such a way that the taxable income is minimized as much as possible. However, when you are selling your business, you must make sure that you have normalized all the financial documents so that it will be possible to value the business as per the current market value. Some of the documents that may need to be adjusted a bit are accounts receivable, inventory, prepaid expenses, cash and any cash equivalents too, books of value assets, a careful review of the intangible assets and the accounts payable.
You may also be required to adjust the cost of goods, the salary of the owner to match that of the current market rate, review at the salaries of the family members who are in the business, the rent that you pay for the premises the business is located, revise any other expenses that are carried out by the owner only, and other one-time expenses that are only known to the owner of the business.
There are numerous benefits that you will enjoy by normalizing or recasting the financials of your business prior to selling it. These are:
- Having everything as it should be will help in determining the true value of your business. Therefore there is no chance that the business will be over or under valued.
- When the financials of a business are clear, chances of getting a buyer soon enough are high. You will, therefore, be able to dispose of it as soon as possible.
- It will be possible for the prospective buyer to foretell how the business will fair in the future as well as the market opportunities that are available when the financials are in order.
- It will also be possible to compare the business with others in the market so that it will be possible to tell whether it is a good investment opportunity or not.
Tips for recasting
For you to get the best out of the deal there are some tips that you should follow as discussed above:
- The process of selling a business takes time, steps, strategies and protection to business viability. The terms and conditions have to be fulfilled to the letter.
- The normalization should be done fast and correctly to allow you close the deal soonest.
- Be honest with the seller so they can also start on the right foot.
- The buyer has to be able to go through all the documents so that they can appreciate what they are expecting.
- You should seek the services of a professional for the process to ensure that everything is done right.
Having secure and confident financials will make or break the process
First of all the documents have to be available. Secondly, they have to be adjusted to show the real state of the business. It is with the availability of these documents that the process will go on smoothly and also the business will be sold off fast and for what it is really worth.