Due Diligence Items That Business Buyers Want To See When Buying A Business in Orlando.
As business brokers servicing the Orlando area we come across all kinds of record keeping habits when business owners are looking to sell. Fortunately businesses for sale in Central Florida are typically much more current in record keeping practices and have incorporated more technology into their operations. Occasionally when we speak with owners that are looking to sell businesses in the Orlando area we still encounter handwritten booklets with sales numbers but we do not encounter as many as we used to.
In the Florida area, the process of due diligence in typically takes place after a purchase offer is accepted from a buyer. Business buyers take this time period to explore everything about the business. It’s a learning process as well as an inspection process. It’s a very common process when selling a business in Orlando or the Florida area. Business sellers should not look at the process as an issue of trust. Because it’s not always about trust. Sometimes there are legitimate mistakes in financials that buyers need to find and the sellers have no idea. Ultimately these discoveries benefit everyone involved.
Often times business owners putting up their businesses for sale are told that potential business buyers will want to see their current profit and loss financials and their last three years of tax records.
The reality is these are the documents buyers want to start out with and there are way more items buyers will ask to see. Often times these documents are asked for during due diligence but occasionally on a more complicated transaction when more evidence and information is needed they are requested before a purchase offer. These items including documents such as bank statements, state filing forms, point of sale records and often times a buyer’s accountant will ask to see a business seller’s whole Quick books file. To offer a little more detail on these documents, we will examine them a little closer and go over why buyers want to see them. Remember that when selling a business in the Orlando area business owners should expect that business buyers, their accountants and potentially their lenders will want to see the their company’s financial records. For example, requests for profit and loss statements typically do not end with just a current year profit and loss statement. Many buyers request profit and loss statements for each of the previous three years and will often ask for balance sheets to match up for those three years.
Business buyers will also ask for current year bank statements and bank statements from the previous year and possibly the year before that. Business owners should not be alarmed as this is a very common practice. If business sellers do not keep a binder that stores each month’s bank statements they should prepare to fill out some request forms and possibly pay their bank to furnish them with monthly bank statement forms from beyond a year or 18 months prior because many banks do not grant their customers much more historical data than that online. Accountants and buyers use bank statements to match up the monthly earnings to the monthly bank statements. If the money showed being earned and being spent on the monthly profit and loss statements does not match what is being shown on the bank statements expect an email or a phone call.
Point of Sale (POS) system reports and credit card statement reports are also huge items on due diligence lists for buyers especially if a business is a retail business or heavily dependent on customers paying by credit cards. Not only do buyers match up these numbers to those on the profit and loss statements and tax records it helps them establish fixed costs for the business. For example, what is the merchant rate the seller is currently paying and what POS system is the seller using, what are the maintenance fees and what are their payment fees if it’s not yet paid off.
A number of government document financial forms are also requested by buyers. The major ones are 1099’s and W2’s, however many buyers ask for 941’s (quarterly tax filings) and DR-15’s which are sales tax filings in Florida. Business Buyers use these forms to back up the business owner’s reported earnings. Some times everything is reported correctly and sometimes there are mistakes, errors and on rare occasions there are some wrong doings found. Even closing attorneys have gotten in on the due diligence action and ask some businesses to obtain sales tax clearance from the state verifying that they have paid their sales tax up until that point and the buyer will not be incurring this tax.
All of these documents help business buyers not only verify the performance of the business they are about to buy but it helps them understand the business better as well. Business owners looking to sell their businesses should not feel insulted or doubted because buyers ask for these documents. After all it’s nothing personal, it’s simply good business. It’s the same as asking for a receipt from someone when you make a purchase. If there’s a mix up that receipt can come in handy.
Having all of these documents available while it may take a little extra work, it will make for a very happy business buyer. Why is that important? Because businesses that keep better and more organized financials sell for way more money, they sell quicker, and they help buyers qualify for bank financing which often also leads to higher purchase prices for businesses for sale in the Orlando and Central Florida area.
For more information on selling your business or buying a business in the Orlando or Central Florida area call the Orlando Business Brokers at Crowne Atlantic at 407-478-4101 or check out our website listing businesses for sale in Florida at www.crowneatlantic.com