Mistakes vendors make – Poor financial documentation

We delve into the affect poor financial planning has on a RTO sale with Brendan Hay – Oracle Business Accountants

Poor Financial Documentation and the Impact on Buyer Perception

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Q: What do buyers look for in financials? A: Clarity, accuracy, and separation of business/personal finances.

Q: How does poor documentation hurt perception? A: Raises red flags about profitability, management, and overall value.

Q: Can messy records hide a good business? A: Absolutely. Difficulty assessing true financial health can lead to lower offers.

Specific Documentation Issues

Q: Common mistakes? A: Missing tax returns, incomplete bank statements, unclear bookkeeping systems.

Q: Mixing personal/business finances? A: Creates doubt about true business income and expenses.

Q: Importance of depreciation/valuation? A: Crucial for understanding asset value and potential future expenses. Missing them creates uncertainty for buyers.

Sales Process Challenges

Q: How does poor documentation delay due diligence? A: Time wasted chasing missing records and clarifying discrepancies.

Q: How can missing records lead to lower offers? A: Buyers may perceive higher risk and adjust their offers downwards.

Q: Sales falling through? A: Yes, if missing documents raise major concerns about the RTO’s financial health.

Pre-Sale Preparation Tips:

Q: How far in advance to prepare? A: Ideally, well before going to market (at least 6 months).

Q: Steps to ensure well-organized financials? A: Consistent bookkeeping, clear separation of accounts, reconciled statements, accurate financial reports.

Q: Resources for improved bookkeeping? A: Consider accounting software designed for RTOs, or consult an accountant specializing in RTOs.

Benefits of Strong Documentation:

Q: How do clear records streamline the sale? A: Faster due diligence, fewer buyer questions, smoother overall process.

Q: Can good documentation increase asking price? A: Yes, strong financials demonstrate stability and attract serious buyers willing to pay a premium.

Q: How does good accounting attract buyers? A: Shows financial responsibility, transparency, and reduces buyer risk.

Additional Questions:

Q: Important tax documents? A: Up-to-date tax returns, GST reports, any outstanding tax liabilities.

Q: Red flags in financial statements? A: Inconsistent revenue/expenses, unexplained fluctuations, large write-offs, lack of proper accounting methods.

Q: Single most important thing for vendors? A: Engage an accountant specializing in RTOs to ensure sale-ready financials.