How to Conduct a Business Audit Before Offering Your Business for Sale
[This article was written by Tiffany Harper.]
When exiting your business, there is a lot of work to do because you need to conduct a thorough audit before marketing it for sale. The audit will play a critical role when valuing the business and the buyer will perceive it as instrumental for him to make the acquisition final decision.
That emphasizes the importance of the business audit conducted before offering a business for sale. You may be wondering – how do I conduct this audit? Here are some practical tips that you can follow when selling off your business to ensure that the acquisition brings more value to yourself:
Assemble a team
The minute you consider selling off your business, get in touch with the relevant professionals that will help throughout the process. You should assemble a solid team of professionals that will help audit the business according to each one’s skills. For example, hiring a financial auditor will help you understand where the company is regarding its finances.
Depending on the industry and type of business you’re in, the team you will need won’t be the same as other businesses. Also, depending on the staff you have hired, there might not be a need for a large team. Whereas, some businesses that are running a tight ship might even need to hire a virtual assistant.
Thus, it is important to sit down and analyze the skills you will need to outsource by taking into account the in-house capabilities the business has. On the team you assemble, ensure that a lawyer or paralegal professional is there to offer legal advice.
A legal documentation expert with the law essay writing service says that the attorney will also be tasked with preparing legal documents that must be signed by potential buyers until the final agreement. The key to a successful business audit is gathering all the necessary professionals and getting them on board with the sale.
Get a third-party auditor
Apart from the professionals that need to be put on your team, you might also want to get a third-party business auditor to oversee the whole process. The third-party auditor can be a business broker that is experienced with sales that are similar to yours. Remember, the broker has been at this for years and has much experience that you.
S(h)e can help you identify all the needed information to claim value during the negotiations process. A third-party auditor can help you focus on keeping the business operational during the process of selling it off.
A broker can also provide valuable advice on improving the business within the last months leading to the sale. Apart from that, brokers can use the audit information to determine the value of the business.
Therefore, you won’t have to hire a business evaluator to get the value of the company because it will all be done by the broker. Getting a business broker on board to oversee the audit can be the best decision when selling the company. It will simplify your life and will leave you with a lot of time to spend meaningfully.
Auditing business processes
The chief auditor at the best essays says that once you have got all the professionals required on board, the real audit begins and there are a lot of aspects to analyze, from the finances to all the way to contracts the business has with customers. You should try to establish their value by calculating the revenue it brings each month and multiplying it with the months the contract has left.
Also ensure that all finances are up to the mark by checking the books going back 5 years ago to the most recent spreadsheets and balance sheets. Another aspect you should audit is the assets the business has that will be succeeded over to the new buyer.
That includes company vehicles, buildings, and machinery. If you have proprietary knowledge that will also be handed over such as corporation business, take that into consideration. The most important figures that most buyers are interested in are the profit/loss statements.
That will determine whether the buyers will make the acquisition at a good price or might have more leverage during negotiations. Every piece of valuable information should be audited and do not leave anything out, no matter how small it may seem.
A lot of business owners make the mistake of focusing on the beautiful parts of the company and do not pay much attention to the vulnerabilities or weaknesses. It is important to look at the business objectively when conducting the audit.
Doing so will help you recognize the business’s actual value and thus lead to more realistic expectations. You can do so by inputting accurate figures in the business valuation tool that automates the process of valuing a company. Also, identifying vulnerabilities and identifying their impact on the business can give you enough time to address those issues before the sale.
Moreover, trying to hide all the less than ideal details about the business can have detrimental results during the negotiations. Once the potential buyer identifies the business’s vulnerabilities or weaknesses, you stand to lose a lot of negotiating leverage. It might also result in potential buyers leaving the acquisition because no one wants to deal with an untruthful seller.
Therefore, try to identify all the good and ugly of the business to be accurate and truthful to the best of your knowledge. Acknowledging any vulnerabilities and weaknesses will pass the message of transparency and open communication to the party.
Draft a comprehensive report
When conducting the audit, you should try by all means to document all your findings in real-time. That will help you draft a comprehensive report that will satisfy the buyers and answer almost all of the questions they might have. The report should be very detailed and specific and that indicates how important it is to document everything in real-time.
Doing so will ensure that even the finest details are included in the report. Procrastinating on documenting the findings might lead to a report that is not comprehensive enough or that is somehow inaccurate. The report should even include specifications of the machinery that will be handed over and its current market value.
Also, apart from offering buyers a financial snapshot, you can include the statements used to reach those conclusions. Perhaps, you might also attach the financial books as an annexure to the report that offers buyers information gathered from the audit.
You can delegate this task to the broker or the chief operations officer to give yourself time to keep the business operational. Afterward, you can ask the attorney to draft a non-disclosure agreement that will be signed by the potential buyers to gain access to the report.
The bottom line
Auditing a business that you’re selling can be a lot of work but as long as you are honest and transparent and working with the best broker, you will get a good deal from potential buyers.
Tiffany Harper is a top-level editor who has rich experience in working with essay writers. She is currently working with Write my dissertation, an online agency that provides research writing and paper writing services reviews for students. Her expert-level writing and research skills are second to none and that makes her very popular among readers.