If you are looking to sell your business, probably the most vital document that potential buyers will want to look at are you accounts for the business. Whether you are a sole trader or a Limited company the accounts will provide evidence to a buyer of how the business has been run and the financial returns that are possible. it should also help to justify why you are asking a certain price for the business particularly on a leasehold basis.
With a freehold sale the asking price is usually a mixture of the bricks and mortar value plus the business value on top. With a leasehold sale you are not buying a property, you are buying the fixtures and fittings, the goodwill of the business and the security (or not) of the lease that you have to occupy the premises in which the business is operating.
Most people buy an existing business because they perceive that it will be quicker and cheaper than building up a similar business themselves and therefore be cash positive from day one, which is generally not the case with most start up businesses.
Accounts provide a buyer with a record of how the business has operated in the past. It shows how well (or not) the business has performed with the current ownership and structures in place to achieve those figures. New owners may well be able to identify areas where they can reduce costs &/or increase income and make the business more profitable.
Historical accounts are less relevant if a purchaser wishes to change the nature of the business. This is most typical in the restaurant sector where someone may be selling an Italian restaurant and yet the purchaser wants to change the cuisine to Mexican. Accounts will be of little or no interest because the new model will be completely different and someone will have their own ideas or forecasts on what they think is possible with the business based on it’s set up, the trading location, decoration etc.
Accounts are generally set up by business owners and their accountants to pay the lease amount of tax. it is important that accounts are looked at not just as a set of figures but with a rationale and understand behind them as to how and why they are as they are. When selling a business it is important to identify and strip out any major ‘one off’ expenses like a refurbishment or a cost which might be more personal to the owner of the business such as interest on a loan or equipment that is being hired etc.
If accounts are not kept up to date it does make the sale of a business much harder particularly if someone wants to rely on them as evidence for the trading potential of the business but also in terms of potentially being able to raise funds for the business they wish to purchase.
As a business owner that might be thinking of selling their business in Essex, your starting point should be your accountant and ensuring your accounts are up to date and you understand the figures that are in them. Our role as an agent is to look through the accounts and put ourselves in the position of a potential buyer and know what they are looking for and what questions they are going to ask. Being able to give efficient and quick responses to those questions helps to give a potential buyer confidence that what they are buying is correct and the figures are truly reflective of the activities of the business.