Just recently I’ve had two quite different experiences with two different clients around this. We had one client come to us and they’ve got three arms to their business, and they were looking at selling one and they had a potential purchaser already lined up. And the challenge was that the books hadn’t been kept in a really good clean way to be able to easily pull out one of those businesses and show the earnings before interest and tax in order to value the business.
So what happened was, we had to spend many, many hours dissecting hundreds and hundreds of transactions to try and put together what was close to the profitability of that business, and then as a result, the multiple that we got was a little bit lower because the trust wasn’t there in the numbers.
On the other side, I’ve had a client recently who’s been approached by a multinational corporation to be acquired, and in a few of the initial meetings, we could quickly and confidently not only share the numbers with them, but show them the reporting, we could explain exactly what we’d done and why we’d done it from an accounting and record-keeping perspective, and as a result, that business is going to achieve a lot higher multiple than example one because the confidence that the acquirers have in this business, not only from reputation but from what is actually backed up on the numbers side, makes it really easy to put a valuation together and really easy to negotiate a deal.
So my question to you is, how good are your books right now?
If a potential purchaser came to you today, number one, would you have confidence in the numbers that you’re presenting to them, and would they have the confidence in the numbers to be able to feel confident to make you a decent offer for what they were getting?
If the answer to that question is no, then you need to spend time with your bookkeeper, accountant, and your CFO getting all of that in line so that if you’re approached, you’re ready to go.
And don’t say oh, well that’ll never happen to me, because I can guarantee you these two examples I gave weren’t expecting that, it wasn’t on the cards for them, it’s just that opportunities arose. And you need to be prepared for all opportunities in business.
Having good strong records to support what’s happening in your business is critical for you as the owner and CEO of your organization, but it’s also critical for someone coming in wanting to acquire you one day, and inevitably, that’s what we’re all doing, we’re all trying to build an asset that we can one day sell for a multiple of the profit and earnings so you can capitalize on your investment over the years of sweat and tears you put into your company.
I hope this has been helpful and if you need any assistance with this, please feel free to reach out, we’ve got a number of different people we can put you in touch with that can help you with this to make sure that your records are strong, support your business and you have the confidence in them that if you were approached tomorrow, that the person that would be looking at those would be confident to buy your business also.