As you are preparing to sell your small business, you will of course be compiling your financial records for potential buyers.
When it comes to accounting methods, does the type of accounting you use have any impact on your business sale? Like many things, it depends.
- Cash accounting method is what most small businesses use and it is what most people are familiar with. Cash accounting generally works well with any service type business.
- Accrual accounting is more typically used in retail businesses or anything with inventory. It is less common and it is not as well understood by many people.
- It does not really matter too much which method your business uses as long as the accounting is consistently and professionally done. Business buyers will always look for easy to understand, transparent financial documents. As always, clean books make or break a business sale.
- If you do use the accrual method, you will need to ensure that your cash flow and balance sheets are also updated. You’ll also likely need to keep detailed records of your inventory as well. Not having this information could negatively impact the value of your business.
- If you change your accounting method, you’ll want to make sure you have records from before and after the change so that potential buyers can follow the story.
Clear accounting of your business finances is critical for your business sale. The method of accounting is only important to the extent that it tells the story of your business to potential buyers.
As always, when you’re considering selling your small business in Orange, San Diego, Los Angeles or Riverside county, reach out to us to book a discover call. We love talking with business owners and we’d love to talk about valuation, sale planning or small business sales with you.
