Should I Get an Audit Before Selling My Business?
There are many organizational steps any entrepreneur must take before selling their business. Many of these steps involve getting back-end books in order and preparing financial documents that will be presented to prospective buyers.
In the due diligence phase of negotiations, buyers will peruse all of these documents as they assess whether they believe the business is in good enough shape for them to purchase. They’ll look at sales numbers, expenses, outstanding debt and outstanding invoices.
This process takes a lot of trust between the two parties. You as the seller must trust that the buyer will keep this information confidential; a nondisclosure agreement will help in that regard. Similarly, the buyer must be able to trust that you are providing them with accurate information.
Before you get to this point, there’s a step that you may consider — whether you should have an independent audit conducted on your financial statements and accounting books.
This process can be time consuming and costly, but it could pay off in the end. Is this something you should do before you sell your business? Let’s take a look at some reasons why you might want to get an audit and some reasons why you might not want to get one.
Pro: It Ensures Your Books in Order
You may think that your books are in tip-top shape, but it’s never a bad idea to get a set of eyes from the outside in to take a look. An independent auditor will comb through all of your financial statements and documents to make sure everything is how it should be.
Even if you’re doing a great job of keeping your books, there may be something you could be doing better that the auditor could point out. At the same time, an auditor will be able to point out any major concerns as well.
Most entrepreneurs are familiar with their books, but they often aren’t the ones actually handling them directly. There are opportunities, then, for someone else to make a mistake without the owner knowing.
Con: It May Not Produce Much
Sometimes, audits end up just being confirmations that everything you’re doing is on the up and up. That might provide a sense of comfort and peace of mind, but not produce any tangible results for your business.
In these cases, you would have spent all that time, effort and money getting an independent audit done, with next to nothing to show for it in the end. The catch-22, of course, is that it’s hard to know what an audit will produce before you actually conduct the audit.
Just know going into it that you’re not necessarily going to get anything mind-blowing from the experience.
Pro: It Certifies Your Books
If you’re concerned about the buyer questioning your honesty or integrity, one thing an audit will do is certify that your books are in good shape. This is basically a stamp of approval given by an independent, third-party financial expert — and that can have a lot of value.
This stamp of approval could justify your asking price and give you a lot of leverage in negotiations. It could even save you a lot of time, effort and money during the due diligence phase, as it’s nearly impossible for a potential buyer to question your books if they’ve been independently audited.
It’s also possible that the potential buyer and/or the financial institution they’re using to secure funding for the purchase of your business will require this independent audit. In these cases, you obviously won’t have much of a choice.
Even if that deal were to fall through, you’d still have the certification from the independent auditor in hand to use as a marketing tool for future deals.
Con: It Can Be Expensive
Depending on the size and complexity of your business, a full financial audit of your books could be quite expensive. Some companies may spend more than $10,000 getting an independent audit of their business.
Entrepreneurs who are looking to sell their business are often focused on saving money, not spending it — especially on items that don’t directly and immediately increase their profits. While an audit may have long-term financial benefits, it certainly could be a major deduction from the balance sheet in the short term.
Will you ever recoup the money you spent on the audit? Maybe, but maybe not. It’s hard to put a definitive ROI on an independent audit, because every business is different.
It depends on how much you spent on the audit, whether it produced anything meaningful and whether it helped you close a deal or sell for a higher price. And all of those things may be difficult for you to answer definitively.
Pro: It Can Simplify the Sales Process
A final advantage to getting an independent audit is it could simplify the sales process from a financial standpoint. Not only could it streamline the due diligence phase of negotiations, it could assist in making it easier for you to distribute assets post-sale.
If you have multiple shareholders and/or investors, for example, an independent audit will be a great tool for accurately divvying up the proceeds from the sale. You’ll be able to provide the audit to shareholders so they can confirm that they are receiving their fair share of the business’ assets once it’s sold.
Are you ready to sell your business?
Do you need to know what your business is worth? Have you been thinking about selling your business, but don’t know where to start? At Sunbelt, we know you have a lot of questions about selling your business. We’re here to help with the answers. Find out how much your business worth HERE.
Sunbelt Business Brokers of South Florida provides dedicated business brokerage services for all of your selling needs. Whether you are an established business owner nearing retirement and looking to sell, or an ambitious entrepreneur seeking your next investment opportunity, there is no reason to look beyond Sunbelt Business Brokers. Visit us at 800 Village Square Crossing
Suite 216 Palm Beach Gardens, FL 33410 or contact us at (561) 832-9222.