Maximise The Sale Of Your Business

Before a business is placed on the market, it is important to make sure that the financial situation is properly represented. It is quite normal for the seller of a business to adjust the Profit & Loss Statement, as long as the buyer is made aware of the adjustment. Accountants and brokers call this financial adjustment “recasting” or doing the “add backs" and is done because you are looking to arrive at an agreed profit figure, which in turn will be used to help to determine a fair selling price.

This process presents the figures in a way that is most relevant to both the buyer and the seller. It is typically used by most accountants when advising their clients and is also useful for funding purposes.

Some examples of the expenses which would be added back are:  

• Interest payments

• Excessive wages paid to owners or associated parties

• Expenses on a private car

• Other personal expenses e.g. mobile phones, entertainment etc

• One-off abnormal costs

• In some instances, a portion of the depreciation

The net profit figure that appears in the financial statements is the normal or unadjusted net profit. Once the add backs are made the new figure is called the “adjusted net profit.” This should give an intending purchaser a clearer indication of the  actual trading profit of the business and in small business sales this is usually the profit figure before tax, as every person’s tax situation is different. This is  a reliable method of presenting information in a way that is easily understood by all parties.

Call us at 09 630 1600, toll free on 0800 180 222, visit our website www.abcbusiness.co.nz or email Managing Director Steve Smith (AREINZ) on steves@abcbusiness.co.nz