Insights / Guide
5 accounting tips if you plan to exit your consumer business
In short
Getting your finances in order early makes a sale smoother and protects your price. For a consumer business, five things matter most: accrual accounts, at least two years of history, a P&L you understand, your cost per unit, and bookkeeping that runs without you.
Good bookkeeping is critical to a smooth and successful exit, and it's not something you want to leave to the last minute. But why, and where should you start? Together with our partner Bean Ninjas, we've put together our five main tips for getting your finances in order ahead of a sale.
Exit-ready finances
1. Use accrual accounting
With accrual accounting, you track your actual revenue and profitability, not just cash movements. With cash-based bookkeeping, your profits look like a roller coaster: dipping when you buy stock, soaring when you don't, whatever your actual sales. That makes it impossible to assess profitability properly, or to value the business.
Using accrual accounting is critical if you don't want to leave money on the table. For more on why, read Why accrual accounting is key for a successful exit.
2. Historical data matters
Valuations are usually based on the last 12 months of profit or revenue, but buyers need history to assess performance and future potential. At least two years of data lets them understand your seasonality, and gives them confidence in the business's resilience and longer-term potential.
Too little data creates uncertainty, and can stop interested buyers from going ahead.
3. Understand your P&L
Understanding your financials is critical when you plan to exit. It allows you to:
- assess what your business is worth, and how realistic your target price is
- find ways to improve your profitability before you sell
- answer buyers' questions properly during the process
Make sure your numbers tie together. Sales in your accounts should match what Amazon, Shopify and your other channels actually paid out. Personal or one-off costs should be clearly separated and documented: buyers will only add them back to your profit if they can check them.
The earlier you get your financials in order, the better you can prepare.
4. Know your cost per unit
When you sell, a business-level view of your profitability isn't enough. Buyers will want to dig into your unit-level costs: your cost of goods sold (COGS) for each product. As an owner, tracking product-level costs is also how you make the right decisions and improve the business's performance.
Your stock counts matter too: the stock in your books should match what's really in your warehouse, at your logistics provider or with Amazon, with old or damaged stock written off. Track all of this properly now, so you don't have to scramble at the last minute.
5. Automate the process
No founder enjoys dealing with accounts, but the good news is that automation can help. As well as 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 handover.
A robust system won't just help make your exit a success: it also makes it less stressful.
Thinking about an exit?
Let's talk about your business.
Ready to sell or still years away, the earlier we talk, the better.
Last updated July 2023 · Written by Aïda Aït-Ahmed, Co-Founder, NextoriaWritten in collaboration with Bean Ninjas, bookkeeping, accounting and virtual CFO services for e-commerce businesses.