An older couple who owned a small bar invited me to talk to them about selling their business. When I arrived, we walked to their basement offices where I stopped in the doorway. I was shocked to see 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.”
You wonder: “Will I be able to sell my small business?” In this three-part series we discuss our Simple Approach” to answering that question. The key? Understanding “my results buy my business” and answering three simple questions. (Question 1, Question 2)
Question #3: Can You Document Your Results?
Let’s be clear, the “real” results (like in the example above) don’t matter. The only results that count are the ones you can document.
Most small business owners hate his topic.
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.
If you are interested in selling your business, especially anytime in the next 3-5 years, accurate records are critical.
What Do You Mean by “Document”?
What can you show your buyer? Can you show them accounting records that tie to your tax returns? Client contracts? Can you show them proof that what you say happens really happens?
You need to be able to document your results. If you can’t prove your results (to the buyer and their banker), then the results aren’t real. It doesn’t matter if your records are just messy, or if you’ve “cooked the books” like in the example above. Your “real” financial results are what you show on your tax return. There is no back door. There are no “real” results like in the story above that will replace your documented results.
Keep Clean Records
If you can’t document your results, your buyer won’t (and shouldn’t) take your word for it. A good buyer will trust, but always verify. That’s why you have to keep clean records.
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. It’s the least sexy, most important thing you can do if you’re serious about selling your small business someday.
