Sold! Tips to sell your business.

• Author: Hunter, J. Scott
• Position: Legal Brief

There are three things a business owner should do to prepare for the sale of a business. Two suggestions deal, with accounting systems and financial statements. They apply right now. The third suggestion deals with due diligence documents and corporate cleanup, which comes into play as you move closer to the sale process.

1 Use GAAP

One of a buyers first few questions about your business will include, "Are your financial statements GAAP?" GAAP stands for Generally Accepted Accounting Principles. While there are a variety of different accounting systems, GAAP is the standard system in the United States and is the sum-total of rules, standards and conventions that accountants follow in recording and summarizing transactions and preparing financial statements. GAAP financial statements are not the same thing as financial records maintained for tax reporting.

Many small businesses keep their books based on a method, though not GAAP, that works just fine. But if you plan some day to sell your business, keep the following in mind: If you keep accounting records according to GAAP, your business will be easier to sell and will probably sell for a higher price.

The reason is simple: buyers understand GAAP, and when they review a target company's financial statements, they expect to see financial information they can readily understand. Banks and other lenders also want to see GAAP financial. If your accounting system and financial statements are not GAAP, a buyer will need to learn and become comfortable with the accounting system you use and may require you to convert your financial statements into something that is GAAP.

Not having GAAP financials will place your business at a disadvantage to other target companies that do have GAAP financials. Buyers want to compare the financial condition of one investment opportunity to another. They want to compare apples to apples. If you don't have GAAP financials, you look more like an orange than an apple.

If the sale you contemplate will not occur for some time, talk to your accountant. Start keeping your books, or even a second set of books, on a GAAP basis. That step will pay off when you sell your business, borrow funds or seek outside investment. It will also pay off in terms of how efficiently you operate your business.

2 Provide the Best Possible Financial Statements

Demonstrating financial performance is different than financial results, i.e., how much revenue, profit or cash flow your business...