What does recasting financial statements mean when selling or buying a business?
As a business owner and baby boomer, you have seen your share of ups and downs in the business world. If you are considering selling your business, a growing number of brokers and mergers and acquisition specialists are available. Their service is to offer professional assistance to help you determine its value and how the market might react.
Most businesses use balance sheets, profit and loss statements, and tax returns to track their financial performance. These reports are beneficial in determining a business’s value. In most instances, prospective buyers need to identify cash flow to better understand a business’s health. They must also understand how the money is being spent and the available opportunities to generate positive cash flow in the future.
Recasting Financial Statements
The process of recasting financial statements is essential in determining the value of a business when the owner’s intentions are to sell. Recasting requires extensive investigation to ensure all relevant and appropriate adjustments are correctly reported. This is one of many services a business broker or mergers and acquisition specialist provides. They will examine your financials along with the historical performance of the business and endeavor to identify keys to future performance and market opportunities.
The recasting process identifies items such as excessive and discretionary expenses and nonrecurring revenues and expenses. Recasting provides an economic view of the company and allows meaningful comparisons with other investment opportunities. However, the owner benefits (salary, commissions, perks, incentives, personal loans, and discretionary expenses) are considered and added back into the company’s value so a future buyer can adequately assess the business, its cash flow, and future earning capacity.
A great deal goes into determining the value of your business and selling it. Recasting a business’s financial statements indicates its value and helps an owner manage expectations. A broker or mergers and acquisition specialist will help you understand the financial statements and move forward toward the completion of the business sale.
Are you thinking about selling your business? Would you like to know its value? If so, please visit this page for more information about Business valuation.
For more immediate help, you are welcome to email Andrew Rogerson or call me at 916 570-2674.
This article is reprinted courtesy of the International Business Brokers Association® (IBBA). IBBA is the largest international, non-profit association operating exclusively for the benefit of people and firms engaged in the various aspects of business brokerage and mergers and acquisitions. IBBA® has 1,950 members worldwide, and its corporate headquarters is in Chicago, Illinois.
