Why? Because you need a common ground, where a buyer can look for concrete evidence of your company’s worth. Once that’s been positively established, you can move on the qualitative part of the transaction, where the focus shifts towards the good will and management style of your company. In the meantime, don’t even consider putting your company up for sale until you have these four key financial statements in order:
The Balance Sheet. Your report of all your company’s assets, liabilities and ownership assets. The Balance Sheet reports on a given point of time, and is a snapshot of the company.
The Profit and Loss Statement. Some call it the State of Revenue and Expense, others the Income Statement. Essentially, this statement reports on the income, expenses and profits over a given period of time. The P&L can provide a complete picture of a business’s operations during a particular period of time. A buyer can see all of the company’s activities during that stretch, and understand the rationale and result of your thinking.
Statement of Cash Flow. The lifeblood of any business, the Statement of Cash Flow shows the money coming in and out of business. It also reveals whether you’ve fallen prey to any cash traps, which can suck the cash (and the life) out of any business.
Changes in the Financial History. You typically won’t find this statement in a CFO’s cache, but it’s something we like to see with a company. It provides a look at the financial activity over an extended period of time. We prefer to have no less than three, and hopefully as much as five years of financials. This long-term outlook helps us determine if a company performed solidly and consistently for an extended period of time. It also can help us make sense of any dips in the road, and inquire as to why they occurred, and how they were corrected.
While many businesses will create these documents internally, we prefer statements prepared by a CPA. We also want to examine an accountant’s notes to the financial statements. These notes usually explain certain entries in the financial statements, and give us insight into the company’s financial performance.
Rock LaManna helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. He is President and CEO of the LaManna Alliance, and provides guidance on how to grow a printing business, merge with a synergistic partner, make a strategic acquisition, or create a succession plan. Rock can be reached by email at Rock@RockLaManna.com.