15760 Ventura Blvd, Suite 610 Encino, CA 91436
15760 Ventura Blvd, Suite 610 Encino, CA 91436
Personal, Affordable Payroll Services, Bookkeeping, and Tax Processing for Small Business throughout Los Angeles County.

Financial Statements Key to Getting Best Price When You Sell Your Business

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Dan is ready to sell his pizza joint. He’s been at it for 30 years and he’s ready to go fishing. The business has been good to him and his family. They have made a nice living, paid for a house, and set aside a nice retirement. But he needs a good price for the store to make the retirement secure. He calls a business broker.

The broker asks about his profits for the last three years. Dan really doesn’t know what his profit was. The broker wants to know what he takes out of the business. Dan tells him his salary and benefits. The broker tells him that most pizza places sell for about three times the profit, which includes adding back in the owner’s compensation. In other words, the profit shown by the company will matter a lot. Every dollar of profit is worth $3.

So Dan calls his bookkeeper and asks for a copy of the profit and loss (also known as an income statement.) He was shocked, sort of, to find out there was no profit. Using various approaches, the bookkeeper and CPA had worked to keep his taxes low. The benefit when paying taxes turned into a liability when trying to sell.

The broker explained to Dan that he should take six months to as long as two years to build up his profit on the books. This would mean reversing all those tricks for a while. Dan had not really paid much attention to his financial statements over the years, so the bookkeeper explained the process.

Dan had been very aggressive on things like car allowances, and some overhead items were a bit questionable. Business trips that had a vacation component, and dinners out that may or may not have had any business purpose were other areas to report differently.

When all was said and done, the profit went from -0- to $35,000, giving Dan an extra $105,000 towards his retirement fund. Dan’s only regret was that if he had been paying more attention to his financials, he may have been able to get the business on the market 6 months earlier.

If you would like to have your financial statements analyzed and receive advice that you can understand with regard to how your statements might yield hidden profit potential, reduced costs, or add to your value at the time you sell, call today for a quote at 818-436-2775