Where to start?  Business owners who have not been through an Exit Planning process,

and many of them have not, are often unsure about how we begin and what information is

important. Whether you plan to transfer your business to an insider, sell to a third party or

simply retain your ownership indefinitely, demonstrating your company’s financial ability

through sound financial statements is a critical step in planning for a successful future for

your ownership interest. When you first meet with an Exit Planning Advisor, he or she will

want to determine your company’s current financial status, an assessment that involves


 Business tax returns for the previous two to three years;

 Current financial statements of the business; and

 Your personal financial statements.

Does your Exit Planning Advisor need your company’s financial statements at your

initial planning meeting?

Yes. He or she will continuously refer to your financial statements throughout your

relationship, using them at first to get an initial, but still comprehensive, understanding of

your business.  As you work through identifying your goals and objectives and then

evaluating potential planning opportunities, your advisors will use your financial

statements as one reference point to guide you through a planning process and refine

planning ideas and their expected impact on your business.

What are we looking for?

First, the company’s financial statements not only allow your advisor to understand your

current financial position, but enable him or her to effectively gauge what you have already

accomplished and what remains to be accomplished to create a successful Exit Plan. As

your advisor identifies areas in your business that need strengthening, he or she, either

alone or in collaboration with other advisors, can suggest and help you implement

strategies to create a positive cash flow trend or increase profits. The goal: to achieve

your overall exit objectives.

Second, your financial statements provide much-needed insight into what makes your

business tick and what criteria you use to base all of your financial decisions.  For

example, your past decisions to increase/decrease company debt, invest in intellectual

property development or reduce inventory may tell your advisor about the state of your

business, your industry or your strategic plans.

Third, and most importantly, financial statements provide cash flow information which we

can use to determine both an estimate of the value of your company and its possible sale

price. Financial statements show you and your advisor the historic earnings, cash flow

results and past years’ trends.

Historic results and trends can be indicators of your company’s future performance. Your

advisor should work closely with you to understand how those results and trends are likely

to affect the future.  In short, we need this information to estimate what you can

reasonably expect to receive in total value as a result of your ownership interest leading

up to and through your eventual exit.

Unrealistic…Who me?

Finally, reviewing your financial statements with your advisors will help to dispel any

misconceptions you may have about your company’s value and the likelihood of growing

value. For instance, you may believe that recent improvements will double cash flow and

company profits over the next couple of years. Your advisors, however, will also look at

your company’s historical trends to determine whether past cash flow activity supports

your belief.

In short, the starting point for sound Exit Planning begins with reviewing well-prepared

financial statements.

If you have any questions about the importance of financial statements in the Exit

Planning process, please contact us to discuss your particular situation.

The information contained in this article is general in nature and is not legal, tax or financial

advice. For information regarding your particular situation, contact an attorney or a tax or

financial advisor. The information in this newsletter is provided with the understanding that it

does not render legal, accounting, tax or financial advice. In specific cases, clients should

consult their legal, accounting, tax or financial advisor. This article is not intended to give

advice or to represent our firm as being qualified to give advice in all areas of professional

services. Exit Planning is a discipline that typically requires the collaboration of multiple

professional advisors. To the extent that our firm does not have the expertise required on a

particular matter, we will always work closely with you to help you gain access to the resources

and professional advice that you need.

© Copyright 2016 Business Enterprise Institute, Inc. All Rights Reserved

As a member of the Business Enterprise Institute (BEI), Cornerstone Business Advisors is an authorized distributor of BEI’s content and Exit Planning Tools.