To Business Sell Canada home page. Established Canadian businesses - For Sale by Owner - in Canada.
Established Canadian businesses - For Sale by Owner - in Canada

 
Home Buy a Business Sell a Business Resources Contact Us
    Menu   Testimonials   Tips & Articles --> Article #18   Questions   Enter a NEW Listing  
  Menu  Tips & Articles --> #18  Enter your Ad  

 
Recasting Financials
A key to building value

"We Help You Sell Your Business"

 

- CHOOSE -

• 0. Selling your Business during a Crisis.  
 
• 1. Should I sell my business ?   Take this Quiz ....
 
• 2. Get Ready to Sell Your Business.  
 
• 3. 3 Key Considerations to Create an Effective Business-for-Sale Ad.  
 
• 4. The importance of photos in effective advertising.  
 
• 5. The Ad Title that Sells the Business.  
 
• 6. How to Choose Effective Categories for your Listing.  
 
• 7. Selling your business: ASSET sale or SHARE sale ?  
 
• 8. Some Hints for you When Selling your Business.  
 
• 9. How to Respond to Buyer Inquiries .  
 
• 10. Qualifying Buyers: Separating the sharks from the keepers.  
 
• 11. Ten things I should know when negotiating !  
 
• 12. Will I Get Top Dollar When I Sell My Business ?  
 
• 13. Prepare your Business for your Ultimate Customer.  
 
• 14. Is Your Business a Pain, or a Pleasure ?  
 
• 15. What Drives Owners to Sell & Buyers to Buy ?  
 
• 16. Frequently Asked Questions - by Jim Clark  
 
• 17. An Overview of the Business Selling Process.  
 
• 18. Recasting - a key to building value to the seller.  
 
• 19. What the Profit & Loss Statement Doesn't Tell You.  
 
• 20. How Do Buyers Determine Value when Considering a Business Purchase ?  
 
• 21. Why does Confidentiality Matter when Buying or Selling a Business ?  
 
• 22. Should You Buy an Existing Franchise?  5 Questions to Ask  
 
• 23. Succession Planning is central to selling success  
 

 
 DISCLAIMER 
 
These articles are for general information purposes only and do not constitute legal, accounting or other professional advice.  Important financial and legal decisions should be made only after seeking appropriate professional advice based on your specific situation.
 Recasting - a key to building value to the seller


 
You’re a small business owner.  Chances are you’ll be selling your company to someone who has also been a small business owner.  All small business owners play the "perk game".  Any personal expense the owner can legitimately hand off to the business to reduce taxes is fair in the perk game.  The perk game reduces taxes but the profit and loss statement usually takes a beating.
 
Now that you want to sell your business, it’s time to own up and tell the buyer what you’ve taken out of the business and to what extent it has reduced income-taxable profit.  They won’t think less of you, because they’ve done it too.  You should also admit to inefficiencies that you’ve let slide, because the new owner is much, much smarter than you (at least that’s what they think) and will do a better job than you could ever do to boost sales and profit (at least that’s what they think).
 
The process is called "Recasting".  This means adjusting past financial statements to better reflect true cash flow. This isn’t cooking the books - in fact, you should plainly label recast financials as such.  And you’ll still be providing non-recast financials to the buyer.
 
Here is a quick formula for recasting starting with your last three years of regular financials:
 
- 1. Deduct from expenses the owner’s salary, bonus and all other direct payment to the owner(s).  Then add a reasonable salary for a manager to take your place.  Be realistic here!
 
- 2. Deduct from expenses all non-direct owner expenses: retirement or profit sharing plan contributions, automobile lease or payment, auto insurance, and all other perks the owner receives.
 
- 3. Adjust for any leasebacks or other arrangements (cars, real estate, etc.) that your company has with you or family members.
 
- 4. Deduct any surplus staffing.  Are you carrying anyone on the payroll that could be eliminated by the new owner?
 
- 5. Cut out all extraordinary items: legal fees for a lawsuit that has already been settled, the accounting fees for updating your records to prepare the business for sale, extraordinary bad debt that was due to one bad customer in one year, extraordinary product development costs, large equipment purchases that were expensed up to the legal limit, etc.
 
There are so many items to be considered, it’s impossible to list them here.  But take the time to look at each item on your profit statement for an opportunity to recast.  Be sure to note your reasoning and list them to support your recast figures.
 
Also be sure to project future sales.  Remember this rule: the buyer is buying the future, not the past.  The past (all the recasting you just did) was done to support expectations for the future.  Project aggressive but reasonable sales increases that can be supported with a marketing plan.
 
Finish by subtracting your recast expense total from your projected sales figures.
 
The combination of recasting expenses and forecasting higher sales will have a dramatic impact on the value of your business.  Remember, at a multiplier of four times earnings, $25,000 in recast profit means a $100,000 increase in selling price.
About the author: James Laabs is an experienced business seller and author of the book The Business Sale System: Insider Secrets To Selling Any Small Business

This Article is copyright © 2006 Business Sale Center


 
[ Go Back ]

 
For Sale - Canada     Home | Buy a Business | Sell your Business | Resources | RSS | Site Map   For Sale - Canada

  DISCLAIMER  
BusinessSellCanada is not responsible for the accuracy of the information
shown in any of the "Business For Sale" listings.  The Buyer should
contact the Seller/Agent directly and verify the accuracy of
all information to his/her own satisfaction.

•  All scripts and text © 2016 BusinessSellCanada.com  •
 
Classified Ads of Businesses For Sale in Canada
 
 
Website established 2003

Ichthus - Christ