Selling a Business With Messy Books, or Buying One

A buyer, their lender and their advisers will go through several years of your financial statements and tax returns line by line. They are looking for profit that is real and repeatable, and for anything that suggests the numbers cannot be relied on.

• Statements that do not agree with the tax returns
• Revenue that cannot be traced to deposits
• Personal expenses mixed into the business, with no way to identify them
• Debts, unpaid taxes or unfiled returns that surface late
• Inventory or equipment on the books that does not exist, or the reverse
• Unreconciled accounts

Personal spending is a good example of why clean books raise a price. Owners often run personal costs through the business, and a buyer will add those back to profit only if each one can be identified. If they are buried in general expenses, they simply count as costs.

New owners often inherit a bookkeeping file, or a box, from the seller. What to do with it depends on what you bought.

• If you bought the assets, your business is new for bookkeeping purposes. It needs a fresh set of books that starts on the closing date with what you paid recorded properly
• If you bought the company itself, its history and its liabilities came with it, and the existing books need to be made reliable
• Either way, what you paid has to be allocated across what you bought, and that drives depreciation for years
• Sales tax, payroll and license accounts need moving into the new owner’s name or checking for balances

We set up the opening books from the closing documents and then keep them monthly. See fix the file or start over and our bookkeeping service.