What does recasting financial statements mean when selling or buying a business?
As a business owner and baby boomer, you have seen your share of ups and downs in the business world. If you are considering selling your business, a growing number of brokers and mergers and acquisition specialists are available. Their service is to offer professional assistance to help you determine its value and how the market might react.
Most businesses use balance sheets, profit and loss statements, and tax returns to track their financial performance. These reports are beneficial in determining a business’s value. In most instances, prospective buyers must identify cash flow to understand a business’s health better. They must also understand how the money is being spent and the available opportunities to generate positive cash flow in the future.
Recasting Financial Statements
Accuracy is essential when recasting financial statements, as the final business valuation will be inaccurate. This leads to frustration for both the Seller and the Buyer when the business is for sale. Recasting requires extensive investigation to ensure all relevant and appropriate adjustments are correctly reported. This is one of many services a business broker or mergers and acquisitions specialist provides. They will examine your financials and the business’s historical performance and endeavor to identify the keys to future performance and market opportunities.
The recasting process identifies excessive and discretionary expenses and nonrecurring revenues and expenses. Recasting provides an economic view of the company and allows meaningful comparisons with other investment opportunities. However, the owner benefits (salary, commissions, perks, incentives, personal loans, and discretionary expenses) are considered and added to the company’s value so a future Buyer can adequately assess the business, its cash flow, and future earning capacity.
A great deal goes into determining and selling your business’s value. Recasting a business’s financial statements indicates its value and helps an owner manage expectations. A broker or mergers and acquisitions specialist will help you understand the financial statements and move forward toward completing the business sale.
Are you thinking about selling your business? Would you like to know its value? If so, please visit this page for more information about Business valuation.
For more immediate help, you can email Andrew Rogerson or call me at 916 570-2674.
This article is reprinted by the International Business Brokers Association® (IBBA). IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in business brokerage and mergers and acquisitions. IBBA® has 1,950 members worldwide, and its corporate headquarters is in Chicago, Illinois.