Good bookkeeping is critical to a smooth and successful exit process. And it is not something you want to leave to the last minute.
But why is that? And where should you start? In collaboration with our partner Bean Ninjas we’ve compiled our 5 main tips when it comes to getting your finances in order ahead of an exit. For more in depth advice, you can refer to our article on accrual accounting.
With accrual accounting, you can track your actual revenue and profitability; not just cash movements.
With cash-based bookkeeping, your profits look like a roller-coaster: dipping when you purchase inventory, soaring when you don’t, regardless of actual sales. This makes it impossible to properly assess profitability and value a business.
Using accrual accounting is critical if you don’t want to leave money on the table.
While valuation is based on last 12 months profitability or revenue, buyers need historical data to fully assess performance and future potential.
Seeing at least two years of data allows them to understand your business’s seasonality, and gain confidence in its resilience and longer term potential.
Insufficient data creates uncertainty and can prevent interested buyers from making acquisitions.
Understanding your financials is critical when planning to exit. It allows you to:
- Assess the value of your business and how realistic your valuation target is
- Identify ways to improve your profitability before you exit
- Properly address questions during the process
When looking to exit, having a business level understanding of your profitability is not enough.
Prospective buyers need to dig into your unit level costs. And as a business owner tracking product level costs is critical to making the right decisions and to optimizing your business performance
So make sure you track these properly so you don’t have to scramble at the last minute.
No entrepreneur likes dealing with accounts. But good news: automations can help!
On top of making your life easier, a streamlined process makes your business more attractive to buyers who won’t have to worry about the quality of your numbers or a messy transition.
A robust system won’t only help make your exit a success, it also makes it less stressful
Want to understand exactly what to track and how to do it efficiently for your business? We’re always happy to provide tailored recommendations for your business, don’t hesitate to reach out! Contact us at info@nextoria.com
This article was written in collaboration with Bean Ninjas: Best-in-class bookkeeping, accounting, virtual CFO, and tax services for eCommerce businesses looking to scale. Reach out on tom@beannijas.com !
