Hello again. Well I thought I would post this week on something I think business owners may take for granted when they own the business but can make significant material difference to the due diligence when selling their business - A quality accounting program which is able to produce reports that can verify and document a company’s performance.

This may sound like a no brainer but it seems that more often than not mature NZ business owners run their business more by instinct than by management. If the basics are covered: there is money in the bank, we have stock and we are billing and collecting then most business owners are happy. There is nothing really wrong with this when you as an experienced business owner continue to own the business, and I concede that in a lot of cases owners have been in their business over 20 years and understand its nuances intimately, but this doesn’t help when you decide to exit and a potential purchaser is trying to complete a due diligence investigation.

If you have a 3-5 year plan to exit your business, and your existing accounting program is not up to scratch, then it would be my recommendation for you to bite the bullet and invest in a new accounting program for your business. Talk to your accountant and ask him/her what they would recommend, investigate what similar businesses to your own are using here and abroad and most importantly complete an internal audit on what makes your business tick, where you think the value is and what you would need to be able to verify to a purchaser to ensure you get the best price.

What do I mean by this you might ask? We have had a couple of recent transactions where the inability of the vendor company to provide the information required by the purchaser has significantly added to the term of the DD, materially changed the terms of the agreement and in one case the price.

The dilemma facing most business owners is the cost and the downtime associated with instituting a new accounting system in their business. There is a very real cost associated with this and I feel puts owners off especially if they can continue to run their business themselves without it. But when you wish to sell, your experience and instincts will be lost to the business, and the only way a new owner can hope to continue running the business is to have quality historical information.

A business buyer will only pay value for that which they can verify. This is especially the case in the current market because financiers are now asking purchasers to provide significantly more verifiable information than they ever did, and if this information cannot be provided then that purchaser will not obtain the finance required to complete the transaction.

So if you are looking to exit in the short or the long-term then you need to begin the process. It will make a significant difference to your broker’s ability to defend the price asked for your business, it will make for a more pleasant & efficient DD investigation and will enable the purchaser to obtain the finance required.

So our advice is, don’t wait because it will cost you in the long term.