Business Books and Records Are Important

"Why Your Business Books and Records Are Important "

It is somewhat surprising how many business owners do not have a solid grasp of the financial performance of their business at any given time. In a perfect scenario, business owners should regularly analyze the performance of their business – making sure that the books and records are in order.

Besides tracking the progression of your business, keeping an eye on your books and records will also allow you to verify that your accounts payable and receivables are where you expect and need them to be. If you are thinking about selling your business within the next few years, you need to start getting your business and the books and records in shape. In particular, you should be tracking where revenues or losses are coming from along with industry comparisons of you your business compares to others.

Specifically, you should be paying attention to the profit and loss statements (P&L) when analyzing your business. This document will allow you to account for all of the income your business has earned as well as expenses incurred. Remember that buyers are looking for a business that is making a profit, keeping in mind most business owners for tax purposes slant the P&L to show maximum expenses and minimum profit. This “owners tax strategy” can be mitigated by recasting the P&L (something I will talk about in a later post), where we show the actual ongoing business expenses and maximize the profit. 

You should have at least the past three years P&Ls, balance sheets, and tax returns professionally prepared if you are thinking about selling. Good books and records along with a record of steady profitability will help you prove to a buyer that your business is worth your asking price.

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