It's almost end of financial year, in Australia at least.
One of the opportunities which are often overlooked by business owners is the opportunity to review and restructure the chart of accounts in their accounting package. It should be an end of financial year routine for businesses.
Why would you want to do that?
In a previous blog "Have You Checked Your Vitals Lately?" we stressed the need for business owners to know their numbers - especially the 'vital' financial numbers. To this end, your management accounts are your ‘instrument panel’ for the business. They should be set up to provide you, the business owner, with the information you need to make informed decisions in your business.
Correctly set up, your accounts will tell you; what are your most profitable products and services, who are your most profitable clients, the lifetime value of your clients, where your cash is going, and where you can increase your profits – just to mention a few. The start of a new financial year is a great point to start your new chart of accounts.
When preparing your business “ready for sale” the profit and loss statements are crucial. Even if you intend to 
keep the business forever, and put it under management - YOU NEED TO KNOW YOUR NUMBERS! It's easier to do this if you set up your chart of accounts to tell YOU, the business owner, what you need to know. When is the best time to do this - before the end of financial year so that you can start the new year on a clear reporting boundary.
Make sure you identify different income streams – not just “Sales” or “Income”. Break it down into logical product or service lines. Track your cost of sales in the same way. Accounting packages these days allow you to assign product codes and associate costs to ‘project codes’. Make good use of the powerful features of the accounting package. Seek help from a good accountant and if you don’t know one, just give me a call.
If you ever want to sell the business, it makes it much easier to put a value on the business if you separate out items that can become add-backs. That is, such things as owner’s wages and super, subscriptions and memberships and anything which is discretionary and not part of the day-to-day operations. It also makes it much more attractive to a buyer and improves the likelihood of getting through due diligence quickly and painlessly.
“You should build your business as if you are going to keep it forever, but could sell it tomorrow!”
The end of financial year is a good opportunity for reviewing your business performance over the last year as well as setting strategies, goals, and plans for the coming year.
Your financials need to be structured for potential buyers to be able to understand them. Are you in the right legal entity structure to facilitate an easy sale? Check out my webinar recording on this topic, or my podcast.
You can always CONTACT ME and let's have a chat.
If you are a business owner and want to know if your financials are set up to make your business saleable or what you might get for it in today's market, click one of the buttons below!
