An older couple who owned a small bar invited me to come talk to them about selling their business. We walked to their basement offices where I stopped in the doorway. Their desks were covered in stacks of cash. Mostly $1’s and $5’s, with the piles so high I worried throughout our conversation about a collapse.
With a grin the couple described how they had “done pretty well” even though their tax returns showed they’d never made a dollar (wink-wink). “Sure, our tax returns look bad, but those aren’t our real results.”
Can You Prove it?
The business owners in the example above made a mistake. They thought their “real” results mattered. Because of their dishonest record keeping they couldn’t document their “real” results, and they never sold their business.
Most small business owners don’t love this section. You can see it as busy work. Work that you must do to get to the work you really want to do. But if you are interested in selling your business, especially anytime in the next 3-5 years, accurate records are critical.
Once you understand that “my results buy my business”, the key is to focus on taking consistent steps to improve your results. To do that you need to ask 3 key questions.
What Do We Mean By “Document?"
Can you show your buyer? Can you show them accounting records that tie to your tax returns? Can you show them client contracts? Can you show them proof that what you say happens really happens?
If you want to sell your business, you need to be able to document your results – the only way to do that is to keep records that show your buyer proof of your results. If you can’t prove your results (to the buyer and their banker), then the results aren’t real.
Your “real” financial results are what you show on your tax return. Those are your results. There is no back door. There are no “real” results like in the story above that will replace your tax returns.
Keep Clean Records.
It’s hard to prioritize record-keeping. Other things get in the way like bidding new clients, or fixing customer issues, or hiring new employees. Record keeping gets pushed aside, and we understand. As long as you recognize that your potential buyer won’t understand.
Your buyer won’t (and shouldn’t) take your word for it. They shouldn’t take your word about your financial results, or your agreements with your clients, or your arrangements with your employees, or anything else. A good buyer will trust, but always verify.
Do you have a paper trail? Do you have contracts? Can you prove your results and the structure for future results from your records? If you can, fantastic. If you can’t, understand that your lack of documentation will destroy your ability to sell your business.
It’s simple, but not easy. Keep clean records.
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