In many cases, individual settings and sole traders rely on their end of year accounts to report their incomes and costs, and this is the first thing a buyer and their lender will request. However, a set of accounts produced nine months after year end will only tell half the story.
As you approach sale, it is a good idea to review the accounts breakdown and your own in-house tracking of income and costs to ensure they are showing correct information and present the setting in the best light.
This also allows you to have all the information at your fingertips and give you more insight into the day-to-day finances and how they convert to the end of year accounts, rather than gasping in shock at what you’ve spent when the accountant presents it to you.
With your accounts, useful things that can be done as standard which will not only assist a buyer but also allow you a clearer view of the business are:
- Separating out different income streams to show local authority income, private fee income, sundry income and non-business or other income, such as rents or bank interest.
- Separating out individual costs to highlight non-operational costs, such as home office costs, and also one-off costs that a buyer would not expect to have to meet on an annual basis, such as a one-off expensive repair.
The term ‘management accounts’ can put people off as they assume this is something the accountant must do for them, or they visualise a complicated spreadsheet. This doesn’t have to be the case.
The key thing is a list of payments received and a list of payments made, ideally with clear information of what those relate to. List costs with a one-word explanation; ‘insurance’, ‘food’ is all that is needed.
Templates can be found online. This not only makes your accountant’s life easier but will also allow you to manage the business month on month and see how key areas are performing, and if spending is sneaking up without you realising.
