All buyers and bankers require accurate and timely financial information when working on an acquisition. This is obvious. However, many times the target businesses do not produce the required financial information that is needed on a timely basis. This begs the question, what exactly are buyers and bankers looking for when asking for a business’s financial details? This blog highlights the essential documents business owners need to have at the ready when preparing for a sale.

What Financial Documents Do Buyers Need?

During the due diligence phase of a business sale, buyers and bankers request a significant amount of financial information about the company. This list will include not only the Company’s year-end tax returns or financial statements, but also financial reports by customer, vendor, salesperson, company location, customer location and division, to name a few. Here is a full list of documents a business owner should have at the ready for potential buyers:

• Year-end income tax returns, sales/use tax returns, personal property tax returns
• Profit & loss statements and balance sheets (monthly)
• Insurance policy information, including workers comp claim details if applicable
• Copy of lease agreements
• Fixed asset details
• Executive summary/overview of business
• Sales reports by product/service and customer
• Purchases by vendor/product
• Inventory reports by product including analysis of slow moving products
• Details of any recent litigation involving the business

Most buyers require this information to ensure that the business they are buying is in good standing. However, before any critical information is provided to a buyer, it is imperative that all parties involved in the transaction sign a Non-Disclosure Agreement (NDA). This contract helps protect yourself and your business from any leak of sensitive information.

Having CPA prepared year-end financial statements isn’t necessarily a requirement for a business transaction; however most buyers find it helpful. Maintaining accurate information will help you estimate a fair asking price and will help you fix any issues that could jeopardize a sale.   If you are feeling overwhelmed or are still unsure what financial information you will need to provide, consider seeking help from a professional.

In summary, the selling company should be able to produce accurate financial statements (annual and monthly) and other management reports used to monitor company performance. These documents help potential buyers better understand your company as a whole and can help improve your chances of locking in a deal. If you have any questions, please contact Lutz M&A for assistance.