Tuesday, 4 Jul 2023
Bookkeeping is a prominent part of running a business and its sale. Any financial commitment of the business requires the intervention of an expert who can assess the feasibility of the deal.
These professionals are needed to determine the right value of the entity when it is put up for sale and help with the negotiations. Every entrepreneur has to exit at some point in the business lifecycle, and selling their venture helps them secure their future.
They must close a profitable deal to enjoy a luxurious retired life and generate the maximum return on investment. It is the best reward for the hard work they put into setting up and running the business in Melbourne.
So, here is everything you need to know about the role of bookkeeping in business valuation and sales. It will make you prepare for the transaction and understand the importance of bookkeepers in the process.
Business valuation is the process of determining the value of the company to ascertain its selling price. It is vital to get this valuation done by an expert in the field to arrive at a fair value for the venture. The owner may not be able to calculate the right value because they are emotionally attached to the entity and have spent years growing it.
Since business valuation requires analysing the tangible and intangible assets of the business and its liabilities, it can be best done by a professional bookkeeper. They use several valuation methods to determine the price for listing the business during the sales process. The purchase price is also needed when the entrepreneur seeks funds, is going through a merger, or undertakes tax planning.
Utilising the services of the bookkeeper for business valuation is essential to ensure you have calculated the price correctly. They are financial experts who follow a data-driven approach to set the purchase price without bias. Here is how they help in the valuation process:
The most significant contribution of bookkeepers in the business valuation process is that they bring accuracy and professionalism to the process. They use industry standards for calculating the purchase price objectively.
The methods used by expert bookkeepers Melbourne include market capitalisation, earnings multiplier, discounted cash flow, and times revenue method.
They also check the liquidation and book values to ensure the business is not sold at a lower price. They are aware of the trending prices in the industry and have worked with several entities during the sales process to ensure accuracy and reliability.
Bookkeepers keep all the financial data carefully organised and in accordance with legal regulations. It makes it easy to provide the desired business information to potential buyers during the sale. Efficiently organised books and data increase the credibility of the Melbourne-based business and make it desirable.
Bookkeepers help with the valuation by analysing the financial statements of the business to assess its profitability and bottom line. It is a fact that the sales price of the entity goes up if it is highly profitable and comes down if it is failing or burdened with debts. Thus, evaluating the cash flow plays a significant role in business valuation, and bookkeepers help in this regard with their proficiency in predicting and assessing it.
Another important factor that needs to be considered is the entity’s financial history. It is needed to assess its viability and future stability. Bookkeepers use recordkeeping and cloud-based accounting software like QuickBooks to store all the historical data in an organised manner.
They can easily access past records to check the profit margins, expenses and loans. Looking at these records helps identify red flags like financial constraints the venture faces, prolonged losses, etc.
These can affect the final pricing because the buyer will investigate these records during due diligence. Thus, it is better to price the business fairly rather than duping the buyer.
When the entrepreneur decides to sell the business, they must prepare it for sale. It must be attractive enough to generate enquiries from potential buyers. Bookkeepers in Melbourne can help make the business alluring for aspiring entrepreneurs by boosting profits and reducing expenses.
They maintain a positive cash flow by adopting high-growth strategies that increase the potential of the business. For example, they cut costs by suggesting a low-interest rate loan, reducing energy costs, or leasing equipment instead of buying.
They ensure the business invests in profitable endeavours and retains customers to keep growing. Selling a high-growth business becomes easier for the outgoing owner because it finds buyers quickly.
Bookkeeping is an integral part of business valuation because the process needs an in-depth analysis of the financial records and profitability of the business. The quality of the records and methods used to calculate the purchase price is influential in ensuring a rewarding deal. Thus, business owners must hire a competent bookkeeping company to make a successful exit.
