P&L Reports should tell a Story

29 Mar 2017 5:11 PMTroy Potter
P&L Reports should tell a Story

Arguably the most important source documents you can show potential purchasers of your business are profit and loss reports. They are an opportunity to increase the value of your business and can remove barriers to a successful sales outcome.

Most Profit and Loss reports I read are prepared for Tax reporting. It is rare to find one with it's main purpose being to measure the performance of the business and even rarer to find one prepared with an exit in mind. The sophistication of today's accounting packages means there is no excuse for poor quality and non current financial reporting.

Use multiple revenue centers in your P&L and name them appropriately

Known threats to income such as a lack of customer diversity negatively impact goodwill value, but at least they can be managed. Unknown threats to income however, will make buyers more cautious and cause them to discount goodwill to try and mitigate those unknown risks.

Allocate all COGs separately to Expenses and inline with Revenue centers

If your cost of goods are detailed and accurately recorded in your P&L, a potential buyer will be more confident in the business being able to maintain GP margins and may even highlight opportunities for increasing margins which adds value to your business sale.

Expenses will be viewed by buyers as risk and opportunity

Well articulated expense categories will allow buyers to see and manage risks as well as to identify potential synergies and cost saving opportunities. A better understanding of the risks means a bigger appetite to take that risk on. Well highlighted opportunities also allow buyers to factors them in to their valuations.

More information gives buyers confidence to risk their capital on your business.

Troy Potter : Licensed Business Broker 0412 286 176