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