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Financial Statements
If you're thinking of selling your business, either by yourself or
with the aid of a broker, it's likely that your accountant will be one
of the first people you turn to for advice. If you've used an accountant
regularly to prepare your tax returns and draw up financial statements,
he or she will be very well acquainted with the financials of your business.
The accountant, by simply deleting add backs from the spreadsheet used
in your tax returns, will produce what is commonly known as an “abridged
Profit & Loss”. Add backs are such things as depreciation,
interest repayments on debt, one off extraordinary expenses, lease payments
on equipment which are to be paid out and many other items are seen
as add backs.
The "profit and loss statement, (Abridged)”,
also referred to as a "Income Statement" "statement of
incomes and losses," or "report of earnings," tells you
and your potential buyer:
The income the business has earned in the accounting
period
The costs or expenses that were incurred by the business during the
period
Your net profit — the difference between the costs and income
for the period
Two to three years' worth of income-statement data are normally presented,
so that the potential purchaser can make comparisons and identify trends.
One year is the minimum that will be required.
Your accountant will also be essential in drawing up
the historical and projected financial statements and other data required
to place a proper value on your business, and in gathering and organizing
financial data requested by the buyer during the due diligence phase
of negotiations. (Due Diligence)
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