Every now and then I come across a seller who doesn’t want to share their full financials. This is stupid, unforgivable and forces me not to trust you. Sure, the tax returns don’t show the true performance of the business…but that’s why we make normalisation adjustments. A good business valuer (or purchaser) will let you suggest the adjustments as a starting point so don’t worry about what the tax figures show.
I am often provided with a profit and loss statement after adjustments, which basically means all the bad parts are deleted. The problem with this, is that even if I agree to ignore the bad parts, I have no way of knowing whether the rest of the figures are complete and free of typos. I need something to tie it all back to – the official financial statements.
The concerning part is that the last two examples of this attitude have come from an accountant and a bookkeeper, who both should know better.
Business valuations are all about risk. For any level of adjusted profit I will value it relatively higher if the risks are lower. When a seller deliberately gives me information I can’t cross-match to the financial statements then from the outset you are pushing you know what uphill to get me to trust anything else I’m provided. Low trust means high risk and a relatively low business valuation.
By all means, take some time and explain to me why some of the expenses are private, unnecessary or one-off. Tell me about how some of the income didn’t make it to the financial statements in time. Be honest and transparent and as a business valuer I will pay more attention when you boast about the good things going on in the business too.
Even if you can trick your way to getting a purchaser to believe the numbers without seeing the financial statements, the problem is that eventually, before they write you a cheque, they are going to get someone like me to do some level of due diligence on the figures first, which may waste all of the negotiating you’ve done to date. Not showing your figures is unforgivable and will only lead to the purchaser eventually walking away or offering an unacceptably low price.
The Lesson: The key thing to remember is that purchasers don’t get the past profits, only the future ones. So if you can convince them that the future is going to be different to the past, then you will have nothing to worry about. If you can’t then you probably don’t have much to sell yet.
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