What financial information do I need to sell my business?

24 Feb 2022

If you are thinking about selling your business, having proper financial information available is crucial.

You will need 3-5 years statutory accounts and 12 months managements at the very least. Ideally, you will also have a financial summary available which outlines past and present trading.

This article describes the financial information you need on hand in more detail.

A good financial summary

Prospective buyers will want to understand the size, performance, and trends of your business.

A good financial summary should include turnover, cost of sale, gross profit, expenditure, and net profit for at least 5 years. If you are part way through your financial year, it is usually acceptable to include a forecasted year by extrapolating your year-to-date financials over 12 months.

If you are more financially savvy or have a professional helping you, we recommend using EBITDA and adjusted EBITDA (see terminology section at the end of this article) rather than net profit. This is a more accurate representation of the business’s earning potential.

The financial summary should look something like this:

Example 1 – Basic Financial Overview

Example 2 – Advanced Financial Overview

Don’t panic if this looks a bit daunting. Verilo can prepare a financial summary on your behalf as part of a valuation or sale process, provided your statutory accounts and managements are sufficiently detailed.

Statutory Accounts

Statutory accounts should be simple for a limited company to get hold off. Your accountant should have these to hand and get them to you promptly. You may find that your most recent accounts are a bit out of date and aren’t reflective of current trading. This isn’t an issue provided you have good quality management accounts to go alongside them.

If you are a sole trader or smaller business, you may need to speak to your accountant about the format in which your accounts have been prepared. Depending on your circumstances and how the business operates, your profit may be under or overstated. Verilo can also help with this as part of a valuation or sale process.

Management Accounts

Management accounts are a detailed breakdown of income and expenditure for the current trading period. It is usually best to present these by month. A good set of management accounts is essential to properly manage a business’s finances and is used to determine a more accurate valuation than statutory accounts alone.

Good management accounts will typically look something like this:

Example 3 – Management Accounts

Additional Information

For the purposes of valuation, you will also need to be able to provide details around the owner’s role within the business (especially clinical hours), how much they take through payroll, how much is paid in dividends, and what other benefits they get. This is important in calculating adjusted profit. If you’ve tried our business valuation calculator out, you’ll probably have seen we ask for some of this information to help determine a basic valuation.

Round up

Hopefully this has given you an idea of the level of financial information needed to value or sell your business. If you’ve got most of this information to hand and want a valuation or to find out more about the sale process, get in touch.

If you don’t have the financial information referenced here, we recommend taking steps now to make sure it is on hand. Management accounts may seem complicated but most accounting software packages can produce these automatically provided data is entered correctly.

Finance Terminology

Here’s a list of key finance terms and their definitions:

Turnover – the amount of money taken by a business in a particular period.

Cost of sale – the costs that directly relate to producing or delivering your product or service.

Gross profit – your turnover minus the cost of sale.

Net profit – your gross profit minus expenditure i.e what’s left after all expenses and taxes are paid.

EBITDA – EBITDA stands for ‘earnings before interest, taxes, depreciation and amortisation’. It is a measure of a company’s net profit – with non-cash expenses (i.e interest, depreciation, and amortisation) added back to operating income.

Adjusted EBITDA – Adjusted EBITDA is EBITDA with additional one-off or a-typical costs added back in.

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