Articles Tagged ‘Financial statements’

The Importance of Financial Statements in the Exit Planning Process

Thursday, June 21st, 2012

Presented by T. Ray Phillips

Whether you plan to transfer your business to an insider or sell to a third party, demonstrating your company’s financial stability through sound financial statements is a crucial step in successfully exiting your business. 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 reviewing:

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 meeting?

Yes. He or she needs a clear and comprehensive understanding of your financial picture for several reasons.

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 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.

Third, and most importantly, financial statements provide cash flow information which we can use to determine both 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. In short, we need this information to estimate what you can reasonably expect to receive for your company.

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 quickly. 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.

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.

This is an opt-in newsletter published by Business Enterprise Institute, Inc., and presented to you by our firm. We appreciate your interest.

Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.

Securities, investment advisory and financial planning services offered through MML Investors Services, LLC 317-469-9999 Member SIPC Supervisory offices: 900 E. 96th St, Ste 300, Indianapolis, IN 46240. The Family Business Legacy Company, LLC is not an affiliate or subsidiary of MML Investors Services, LLC.

Copyright © 2016 Business Enterprise Institute, Inc., All rights reserved.

T. Ray Phillips, CFBS, AEP, ChFC

The Family Business Legacy Co, LLC
900 E 96th Street
Suite 300
Indianapolis, IN 46240

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You’re Checkbook is Making you Moody

Thursday, March 3rd, 2011

Tom was in a great space. He had been in business 12 years, had just expanded into a new market, and both of his sons were active in the business. Tom was comfortable and had enough free cash flow to fund one of his passions: “racing”. But his satisfaction level with his business and employees would vary greatly from one week to the next, sometimes even day to day. His office manager studied this phenomenon for a few months and came to the conclusion that Tom’s attitude was attached to his checkbook balance. He was friendly, agreeable, and focused on the business when the bank balances were high, and grumpy and hard to get along with when the
balances were low.

This is a trap that many small business owners fall in to when their only
gauge of their businesses performance is their checkbook balance. Tom only
had feelings if the weekly or monthly performance in the business was making
or loosing money. He did not know until March or April of that next year if
all of the activity from the pervious year was actually producing a profit
or not.

Tom knew it was important to manage his business and make a profit because
his future and retirement depended on it, but he wasn’t committed to do
anything about it. He didn’t want to re-allocate the funds from his hobby
(where he was having the most fun) to an accounting system and controller
that could generate “accrual” based financial statements so that he would
have a monthly “report card” on the performance of the business. This would
have told him when and where he was making or loosing money, and would have
made him much happier.

Tom is just like many business owners. Here are a number of common reasons
why business people do not make a commitment to have the information they
need to grow and make money in their business:

* They are too involved in day-to-day crisis management to take a step
back and look at what is happening.
* They do not realize that financial management is one of the 3
pillars that hold up the business; the other two are: 1) sales/marketing and
2) product/service.
* They do not know when to stop working and start managing.
* They do not know what they do not know – that financial management
is just as important as sales management, or making sure that you have a
great product or excellent service.
* Their accountant has failed in helping them understand the
importance of accumulating good data (particularly financial data) on a
monthly basis.
* They have never been trained on how to manage the financial side of
the business.

Do you fall into any of these categories? Do you have a good handle on the
monthly financial performance of your business? What is working more
efficiently in making money and what is not? Do you wish that your financial
statements were better, quicker, and were more meaningful (from a management
perspective) to you?

Your chances are four times better for making millionaire status as a
business owner than you do working for someone else. Are you maximizing your

Dan Lacy
Growth & Profit Coach, Financial Strategist, Cash Flow Doctor, CEO Mentor
phone: 765-644-8887

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