I was interviewed last week by Kerry Salls who has a radio program called “Exit This Way”.
It is geared for business owners and provides a wealth of helpful information.
Kerry runs a very interesting company – This Way Out Group (thiswayoutgroup.com) that provides exit planning to business owners. This is not a new industry by any means however Kerry’s take is that “it is never too early or too late to plan your exit”. It is a superb credo and one I have in different words, been preaching to business owners for decades. She has a wonderful platform for business owners and from what I have read, she has been a huge help to many people.
Over the course of the next few posts, I want to touch upon some of the topics Kerry and I talked about. As someone who has worked with business owners and sellers for many years, I have seen the same mistakes and solutions that can have a massive impact on not only the sale of a business (i.e. getting a lot more money) but also in the actual operation of the business – making it better, bigger and more profitable.
Financial reporting is the guts of any business and having accurate ones is as fundamental as having a product or service to sell.
Operationally, having pristine financial controls in place makes the business run better and decisions easier. It simplifies planning and budgeting.
One rule I have incorporated into every business is to not incur any expenses where I could not see a resulting benefit.
This does not have to be increased sales; it could be improvements in operating efficiency, employee effectiveness or satisfaction or other positive by-products. However, I could never determine whether the expense made sense if I did not have proper financial records to validate it.
One aspect of having bulletproof financials is that an owner can eliminate or at least drastically reduce the potential for employee theft. I had three clients in the past two years who each incurred over $100,000 of employee theft in the past. It took each of them more than a year to discover it. All three told me if they had better financial controls, they would have never had a problem.
From an exit standpoint, poor books and records have an insanely negative effect on a potential sale. The lack of detailed, accurate and provable financials is the single biggest reason why businesses do not sell (and 75% of those listed for sale never get sold). Additionally, this scenario almost always leads to a seller having to accept a steep decrease in price and terms from someone who is interested in buying the business.
Numbers don’t lie; people do. If a prospective business buyer cannot prove the numbers then they naturally become highly doubtful of everything else the seller tells them.
Maintaining pristine books and records is good for everyone. It will help you run and grow your business more effectively and will pay enormous dividends when the time comes to sell.