Trio Business Intermediaries Blog

In the work we do in Business Sales and Business Valuations we often speak with business owners and managers about their financial statements (Profit and Loss and Balance Sheet) and wonder why they are not being used more as tools to manage and grow the business.

Some opportunities the Balance Sheet present to keep track of the business:

Stock / Inventory – make sure you have a complete list that adds up to the figure called “Stock” and then go through that list and make sure everything exists and is valued at the lower of what you can sell it for or what it cost to bring in.

Receivables – again make sure you have a list that adds up to the figure for “Debtors” (people that owe you money) and go through that list to make sure all are collectible. A good reality check is required here.

Trade Creditors / Other Creditors – your work is a bit tougher here.  This time you’re looking for what’s NOT on the balance sheet.  Some possible omissions include full employee entitlements (annual and long-service leave,) taxes payable, superannuation payable and commitments you’ve made for new equipment that’s not yet delivered.

Related party loans – hey, we’re accountants; we know the jiggery and pokery that goes on in businesses!  Reality hits though when a buyer or investor comes in and looks at the real substance of any loans.

Any issues you find with these values need to be addressed post-haste.  At a minimum making the adjustments will give you a clearer picture of your assets and liabilities.  A new owner or investor / partner will go through all those assets and liabilities with a fine tooth comb and discount any that look dodgy.

We have too often been involved in business sales and business valuations because things have gone pear-shaped in a business partnership and a shareholder or partnership agreement doesn’t exist or doesn’t address the demise of the business arrangement forged in the trenches of the war for customers / staff / premises  ………..

So many business partnerships start off as a couple of mates / old work colleagues having a good idea and just kicking off to see how things might pan out.  Statistically we know most of those fail but some don’t.  Happy Days.  Problem though is that the inauspicious start often meant no agreement on how things were going to play out when it was a real-live-business or if someone wanted to get out.

There might be an age difference.  There is often a motivation difference.  There can even be a ‘scary wife’ difference!!

Partnership agreements should consider inter alia:

Keep a copy of the agreement at the ready and another at the solicitors.

While you’re there get some good advice on the structure that’s best employed i.e. partnership v company.  The Accountant will also have plenty of war stories to relate in this regard.