One thing that virtually all small business owners do to
"dress up" their business before a sale is to recast
historical financial statements for the last three to five
years, and draw up projected statements that reflect how the
business would look with a new owner.
If you're like most small business owners, you've operated
your business in a way that's calculated to minimize taxes. You
may have given yourself and family members as many perks and
benefits as possible, kept your children on the payroll, plowed
a lot of profits back into capital improvements, etc. These and
other tactics are designed to keep your profits (and your taxes)
low, perhaps artificially so.
Now, however, you want to make your company look as
profitable as possible. Ideally, you would take steps to improve
your actual earnings for several years before putting the
company on the block. If time does not permit (or in addition
to) this step, you can have your accountant adjust your past income
statements to reflect what would have happened if you:
- removed your salary and perks, and those of family members
you don't expect to remain with the company
- removed any expenses or income that would not be expected
to recur or continue after the sale (for example, income or
expenses associated with discontinued products, or gains or
losses from the sale of any business assets)
- removed any investment or other nonoperating expenses or
- removed interest payments on any business loans, since
you'll be removing such liabilities from the balance sheet.
Furthermore, your accountant can adjust your past balance
- Remove any assets that will not be sold with the company.
- Remove any obsolete or slow-moving inventory. Value the
remaining inventory at current replacement cost.
- Value your remaining balance-sheet assets at current fair
- Write off any accounts receivable that are uncollectable.
- Write off any loans the company made to you.
- Remove other debt that will not be assumed by the buyer.
Your accountant may have some other ideas; for example, you
may have expensed
some costs that could have been capitalized.
Whatever you do in the way of recasting your
financials, make sure that any changes to your
historical statements are carefully documented on the
face of the statements, so that the buyer knows you
aren't trying to cover anything up.