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Numbers Don't Lie: What Financial Statements Really Say About a Company
As you move forward with the sale of your business, prospective buyers will primarily focus on your financial documents throughout their decision-making and valuation process. Buyers will look towards your primary financial documents--your balance sheet, income statement, and financial performance ratios--to assess the “meat” of your company. These documents give buyers insight to your company, providing them with a snapshot of your financial standing and a tool to compare your performance relative to others in the business. What do your company's financials tell a prospective buyer? This four page impactful document will put you in the mind of a buyer. “Buy” the Numbers – What financials say about the company As you move forward with the sale of your business, prospective buyers will primarily focus on your financial documents throughout their decision-making and valuation process. Buyers will look towards your primary financial documents--your balance sheet, income statement, and financial performance ratios--to assess the “meat” of your company. These documents give buyers insight to your company, providing them with a snapshot of your financial standing and a tool to compare your performance relative to others in the business. Buyers will especially look for consistency, growth, and comparative success within your financial documents. Fair market value, intrinsic value, investment value, and fair value are all popular approaches to valuing businesses, and each valuation method emphasizes particular financial documents. Because each business has unique strengths and competitive advantages, consult an acquisitions specialist to develop a custom approach to value your business based on one of the approaches but using an appropriate combination of valuation methods to realize the most favorable value of your firm. Asset Based Method: Focusing on the Balance Sheet The balance sheet represents the tangible assets a buyer will acquire and the liability obligations they will take on when they purchase your company. In particular, they look to the value of your net identifiable assets (NIA), which is the excess of the fair market value of your assets over your liabilities. The NIA figure helps buyers value your business as they identify the tangible, value of your firm. When determining the value of your firm’s net identifiable assets, you must distinguish between the book value and the market value of your assets and liabilities. Prospective buyers take interest in the market value of your net assets, which, with the exception of cash, will likely differ from the book value. For example, depending on your method of accounting for inventory, the market value of your inventory will likely differ from your book value. Similarly, the book value of a liability under a long-term lease contract will likely differ from its present market value. Moreover, if the prospective buyer does not wish to continue with that lease under the long-term contract, it could adversely affect their valuation of your company. With appropriate planning, business owners who anticipate selling their business should avoid extended contracts in the years prior to a divestiture. Business owners should also appreciate that the market value of their net assets will differ from their book value, and plan appropriately to present the market value of their net assets to prospective buyers. [continued...] Want to know more? Download the White Paper "Numbers Don't Lie: What Financial Statements Really Say About a Company" for just $9.95. |
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