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The Importance of Management Accounts and Trading Forecasts in the Business Selling Process

A surprising number of SME business owners do not ask their bookkeeper or accountant to produce regular management accounts.  Owners often say they don’t need management accounts as they know how the business is doing from experience and perhaps some key pieces of information that they monitor.  However, we strongly recommend that business owners, ahead of beginning a sales process, arrange for management accounts to be produced on a regular basis, at a minimum, quarterly.  It is important, as well, that management accounts are meaningful, so that they can easily be used to judge the performance of the business.

There are a number of reasons for instituting management accounts if they are not already in place including:

  • Potential acquirers expect to see a management accounting ‘regime’ and the absence of this will reduce the attractiveness of the business to acquirers;
  • The management accounts will be important to demonstrate that the business is on track during the selling process which can often take a year or more;
  • The management accounts are an important source of information for the due diligence process and the absence of this information can extend the timeframe for due diligence which is very much against the seller’s interests.

Many business owners also struggle with the principle of providing trading forecasts as part of the information pack for potential acquirers.  However, this is again pretty-well required for the business selling process.  This is principally because acquirers are buying the future performance of the business, not the past.  Consequently, the valuation of the business depends on the forecasts as much as it depends upon the history. 

It is important to stress that acquirers recognise that forecasts can only be the owner’s best estimate and so when actual performance varies from the forecast this is to be expected.  If the forecasts are correctly constructed, the reasons for the variance will be clear. 

Your accountant will normally be happy to help you produce management accounts and trading forecasts for your business.

At Anderson Shaw Corporate Finance Ltd, we are always happy to advise business owners about what kind of management accounting regime may be appropriate and about how forecasts should be presented and to work with your accountant in either or both of these areas.  If you are thinking of selling your business now or in the future please contact us for a confidential, no commitment conversation.

 

 


Anderson Shaw is part of GS Verde Group, a leading advisory firm operating across the UK & Ireland

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