A new financial year is the ideal time to focus on getting your business on a sound financial footing, more so if you are planning to sell in the near future. Prospective buyers want to see evidence of regular financial health checks, strong cashflow, organised record-keeping, and optimised business finances. It should come as no surprise that sound accounting and financial systems are one of the 25 factors that increase business value.
Whether the previous financial year was good or bad for your organisation, you can look forward to a new one with optimism and a fresh perspective. Taking time to review your business finances is a positive step towards finding the right buyer. In this blog we share eight areas of business expenditure to review and explain how scheduling regular financial health checks is part of preparing-to-sell best practice.
Why is reviewing your business finances important?
Is it really worth doing this now? Surely any new owner will want to review the business finances themselves and put their own stamp on things.
The end goal for most vendors is to get the best price when selling your business. Putting in the groundwork early helps position your business for sale in the best possible light. Having clear financial processes in place, keeping on top of your records and expenses, and maintaining a healthy cashflow will help you find your ideal buyer and steer you towards your ultimate business exit.
When it comes to due diligence one thing is certain – a prospective buyer’s accountant will go through your financial records looking for potential risks and signs of poor management. This is why sound record keeping and financial forecasting is so critical when it comes to achieving a profitable sale. It pays to prepare, and part of good preparation is following financial best practice.
Financial health check: where to focus
- Subscriptions: firstly, review any memberships of professional bodies and associations and make sure the subscription payments are all up to date. Schedule in renewals and add these to your cashflow forecast. Next, check your bank account and credit card statements for any subscriptions that are lapsed or no longer required. We all get lured in by introductory offers and freebie subscriptions to online resources like magazines and news sites, and then inadvertently continue paying when we only intended to take out the free trial! The focus here is not just on eliminating costs, it’s making sure you get full value out of the services you are paying for.
- Licences: when a business operates in a regulated industry, you need to have licences to cover the work that you do, for example handling chemicals, preparing food, or selling alcohol. Take time to review applicable licences to ensure they are up to date and compliant. Add renewal payments to your cashflow forecast.
- Insurance: review your insurance policies and check the cover continues to meet business needs. As your business grows, there’s a possibility you could be over or under paying for the level of protection it requires. It is good practice to review insurance cover annually over setting policies to auto-renew. Presuming the cover meets your needs and forgetting about direct debit payments is a clear business risk.
- Software: does your IT software meet your current and future business needs, and do you have the correct number of user licences for your team? Check that you aren’t paying for legacy applications you no longer use, and remember to budget for software upgrades or additional licences as your team grows. As per subscriptions, check for free software trials due to expire soon and diarise to cancel them if they are no longer useful.
- Utilities: when did you last review your gas and electricity consumption and search the market to find the best tariff for your business? Switching suppliers is a fairly simple process if you’re a home-based business on a domestic contract. Could you get a better deal from your energy company? Commercial contracts can be locked in and more complicated. In this instance it is worth consulting an energy broker to find the best tariffs available for your company.
- Communications: this encompasses landlines, mobile phones, and wider IT infrastructure service providers. Do you have one single provider for everything? If so, are you paying for a single combined package? Search the market to see if there are more efficient plans available for your team’s needs? While taking all your business services through a single provider might be easier to manage, it might not be the most cost-effective option.
- Business credit card holders: it’s important to monitor the use of company credit cards, and who has access and authority to spend on behalf of the business. Credit cards can be open to abuse (and home to those legacy subscription payments we mentioned at the start), so regular spending checks are important.
- Direct debits and standing orders: other payments such as business networking and trade body memberships, or regular charity donations are usually set up via direct debit or standing order. Use the search function in your online account to identify any other regular transactions and ask yourself whether these continue to reflect your business goals and values.
Diarise dates to review
Not all contracts or subscriptions will come up for review at once, so be sure to make a note of expiry or renewal dates and set reminders to check for better deals, cancel subscriptions, or negotiate improved rates with suppliers.
This is also a good time to review access to financial reports and systems. Sometimes this area can be overlooked when an employee leaves the business. From a business risk perspective it is good practice to include system access removal in your leaver’s checklist.
Financial health checks support business growth
Whether you are planning to sell or happy ticking over as is, building in time for regular financial health checks is part of good business management. Following the steps outlined in this post will put your business in a good position to grasp growth opportunities when they arise – which may be sooner than you think.
If planning your business exit feels a little overwhelming, our exit consultants can take the load off. Book a discovery call for guidance on reviewing your business finances to build value and achieve a profitable business sale.
