[a cu men]
n. keenness and depth of perception, discernment or discrimination, especially in practical matters.
Financial Awareness
Even if you don’t have any interest in transitioning out of the ownership of your business, as a matter of good management, it’s good to have a working understanding of your financial documents – specifically your Profit & Loss Statement. A good understanding of this essential financial report is key to making good decisions while you own the business. And it’s equally important when you prepare to sell.
WHY IT’S IMPORTANT
You Profit & Loss Statement, or P&L, outlines your income and expenses for a given time period according to the Chart of Accounts for your business. This is important for at least two reasons:
POTENTIAL BUYERS WILL WANT TO REVIEW YOUR P&L
Because your P&L provides a comprehensive overview of your business income and expenses, it’s a good and accurate tool for a potential Buyer to review in order to determine whether they will make an offer on your business – and if so, how much that offer may be. This will be determined in large measure by the free cash flow your business generates. The more you know about this document and what it represents, the better you’ll be able to communicate and clarify your financial information to a potential Buyer.
HAVE A GOOD WORKING KNOWLEDGE OF YOUR FINANCIALS
As a business owner, you don’t need to know absolutely everything there is to know about your P&L; that’s for your accountant or financial person on your team. But it does make sense for owners to have a good working knowledge of this important document. One way to do this is to review it periodically to make sure that income and expenses are coded as expected. Not only is this a good business practice, but familiarity here will also assist in the selling process when a potential Buyer asks for clarification on any income or expense category.
Another important aspect to keep in mind when communicating with potential Buyers has to do with expenses that are unique to your ownership of the business. Such expenses may or may not occur under new ownership. As such, you’ll want to know how to identify in your P&L any expenses that fall into this category, as this will generally impact the free cash flow number upon which a potential Buyer will be basing their offers.
THREE YEARS OF FINANCIALS IS A COMMON REQUEST
Interested Buyers will often request three most recent years of P&L Statements as part of their Due Diligence process. This helps to determine one-time adjustments as well as patterns and trends in your particular business. Knowing that your P&L documents are complete, accurate and readily available will be a very good feeling as you operate your business – and as you prepare to move toward a sale.
GOOD TO KNOW
Whatever stage you’re in as a business owner, understanding the basics of your Profit & Loss Statement is time well-invested in your business management. And if you happen to be considering what a transition might look like, your P&L will be of primary importance in this process.
SCI has unparalleled experience as an acquirer of funeral homes and cemeteries. If you have questions about the transition process, in general, please give us a call or email us for a completely confidential conversation.
NOTE: SCI and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
We’re focusing on “acumen” in a series of brief, informative topic summaries. Acumen, as defined by Merriam-Webster, refers to “keenness and depth of perception, discernment or discrimination, especially in practical matters.” Each summary is a brief introductory overview of a topic; new topics will be added periodically. As you read through the summaries, put your list of questions together. Then give us a call. There’s no cost or obligation to visit with us – and every conversation and communication is kept completely confidential. Our team is always available to serve as a reliable resource for questions about transition. Or, perhaps we should say, transitional acumen.
WHY IT’S IMPORTANT
You Profit & Loss Statement, or P&L, outlines your income and expenses for a given time period according to the Chart of Accounts for your business. This is important for at least two reasons:
- The proper categorization of income and expenses translates to accurate bookkeeping and an accurate tax return; and
- The P&L is essential in determining the market value of your business.
POTENTIAL BUYERS WILL WANT TO REVIEW YOUR P&L
Because your P&L provides a comprehensive overview of your business income and expenses, it’s a good and accurate tool for a potential Buyer to review in order to determine whether they will make an offer on your business – and if so, how much that offer may be. This will be determined in large measure by the free cash flow your business generates. The more you know about this document and what it represents, the better you’ll be able to communicate and clarify your financial information to a potential Buyer.
HAVE A GOOD WORKING KNOWLEDGE OF YOUR FINANCIALS
As a business owner, you don’t need to know absolutely everything there is to know about your P&L; that’s for your accountant or financial person on your team. But it does make sense for owners to have a good working knowledge of this important document. One way to do this is to review it periodically to make sure that income and expenses are coded as expected. Not only is this a good business practice, but familiarity here will also assist in the selling process when a potential Buyer asks for clarification on any income or expense category.
Another important aspect to keep in mind when communicating with potential Buyers has to do with expenses that are unique to your ownership of the business. Such expenses may or may not occur under new ownership. As such, you’ll want to know how to identify in your P&L any expenses that fall into this category, as this will generally impact the free cash flow number upon which a potential Buyer will be basing their offers.
THREE YEARS OF FINANCIALS IS A COMMON REQUEST
Interested Buyers will often request three most recent years of P&L Statements as part of their Due Diligence process. This helps to determine one-time adjustments as well as patterns and trends in your particular business. Knowing that your P&L documents are complete, accurate and readily available will be a very good feeling as you operate your business – and as you prepare to move toward a sale.
GOOD TO KNOW
Whatever stage you’re in as a business owner, understanding the basics of your Profit & Loss Statement is time well-invested in your business management. And if you happen to be considering what a transition might look like, your P&L will be of primary importance in this process.
SCI has unparalleled experience as an acquirer of funeral homes and cemeteries. If you have questions about the transition process, in general, please give us a call or email us for a completely confidential conversation.
NOTE: SCI and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
We’re focusing on “acumen” in a series of brief, informative topic summaries. Acumen, as defined by Merriam-Webster, refers to “keenness and depth of perception, discernment or discrimination, especially in practical matters.” Each summary is a brief introductory overview of a topic; new topics will be added periodically. As you read through the summaries, put your list of questions together. Then give us a call. There’s no cost or obligation to visit with us – and every conversation and communication is kept completely confidential. Our team is always available to serve as a reliable resource for questions about transition. Or, perhaps we should say, transitional acumen.
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