If your goal is to sell to an individual (your PIC or a chain pharmacist) or to another independent then the number one item you need to focus on is having financial statements which tell an accurate financial picture. The reason for this is that in most cases the buyer is going to have to secure a loan and the bank will approve a loan only if the financial statements are usable and show that the new owner can pay the debt back.
So what should you do? Below are a few items you can do to clean up the statements.
- Stop pushing personal expenses through the P&L right now. If you are paying family members, have a personal car, are buying groceries and running these expenses through the business, that all needs to stop. Potential buyers need to see the true profitability of your business. For prior year financials identify what these expenses are and get detail so the buyers can easily understand.
- Inventory – make sure you have accurate inventories, banks do not like to see an inventory that has not changed in years.
- Accounts Receivable – similar to inventory the accounts receivable needs to be materially correct and should change from year to year.
- DIR Fees – if you are not accounting for these, it is time to start. And preferably make them a distinct line item in your income statement as a reduction in your revenue.
- Supplier Rebates – make sure in your financial statements supplier rebates are reflected as a part of your cost of goods.
- If you are planning to sell in next couple of years do not make any major changes to accounting methods (i.e. switching from accrual to cash).
We hope this helps and feel free to reach out as we have CPAs and accountants on staff to help.
