One of the most basic things needed to make money selling your business is good accounting.Although as children we are often told that "Money does not grow on trees!", business owners often forget that simple truth. The money did not magically get to the bank. Someone had to collect it, count it, sort it and document it. The documentation of how much money comes in and where it sent is critical in selling a business.

Having basics like a profit and loss statement, a list of revenues, and an inventory of assets are a good place to start. Putting such documents together requires more than just bringing in one's monthly bank statements. Businesses need to show how they are doing on a daily and montly basis. Sellers want to know what kind of expectations they can have for what they are purchasing.

It is amazing that a significant number of sellers really do not have a good grasp of their accounting system. These business owners have often focused on running their business and not on the accouning of the money. They do not produce quality financial data.There is no solid system for counting the money and documenting where it goes.

Money is the life blood of any business. When owners do not know their financial status, it is aking to someone not knowing their health status or blood pressure. Not knowing the health status of the business makes selling it a challenge. This lack of knowledge concernging the accounting makes the deal harder to get done. It makes the buyer skittish that there may be a skeleton hidden somewhere in a dark closet that they are not aware of.

If you are a seller and may be thinking "perhaps I'll sell the business in the next year or two," then you absolutely should go find a quality, well-known - it doesn't have to be a national, but one of your state's larger accounting firms or the best local accounting firm in your area and have them come in and start auditing your financial statements. It is one thing if you tell the seller that your business is doing well and making money. When you have the solid financial figures on how your business is doing, it makes the buyers decision to purchase more solid. They know what they are buying. They know what they are purchasing in terms of equipment, debt, money-making opportunities, etc.

From a seller's perspective, properly preparing for a deal includes having audited financial statements. The immediate benefit is that the buyer feels that they are dealing with amuch more sophisticated business and that they can trust the data. While they may not trust it implicitly, there'salways that comfort level of seeing an audit opinion written by a quality CPA firm. It just gets everybody on the same page and the deal gets off to a much better start. A commonly heard saying is "In God we trust, others must pay cash". This saying captures the idea that you need something besides good intentions and faith in conducting business. When you want to sell, the buyer wants solid assurances that they are making a good deal rather than just your word or good faith that it is a 'good deal'.

Sound pretty basic? Interestingly enough, most sellers seem to overlook this believing that they have a great business by pointing to all the money they've made. However if that profit can't be shown on paper, the buyer's not going to give the seller full credit for it. Even large,privately-held, family-held businesses that may be doing a $100 million in revenue exhibit this "lack of sophistication on their accounting systems and controls.

If a seller does not have an accounting or financial background, they tend to overlook the importance of audited financials, especially when it comes time to potentially doing a transaction with their company.

These are some of the basic requirements needed in doucmenting a business prior to selling it. By not having clear documentation, sellers often loose out on potential monies from not realizing the assets they have but never accounted for. A clear system of documentation helps the sell of a business go smoother and also makes tax documentation much easier.

Debits and Credits:

A business needs to have a listing of its debits and credits along with a daily balance between the two.

Assets and Liabilities:

The assets and libilites need to be docuemented on a daily balance sheet. Many businesses mess up with being unclear on what are their assets and what are their liabilities.

What are the assets?:

Simply stated, assets are those things of value that your company owns. This includes the cash in your bank account. These are the things that the company owns. Besides the solid objects, there are also the rights to collect certain debts.

There may also be intangible assets.These include patents, the exclusive right to use a trademark, goodwill from the acquisition of another company, and publishing rights are intangible assets. The value of these assets also need to be included although it is often difficult to establish.

What are the liabilities?:

Liabilities as the obligations of a company. These include the duties to pay other companies, banks, etc.These may be short-term or long-term.

Owners' equity:

Most accounting practics include the owners equity after the liability section in both the chart of accounts and the balance sheet.This is what is left over after assets and liabilities. It often includes such items as:

Partners' capital accounts Stock Retained earnings

Income and Expenses:

These are the daily records of where the money comes from and where it goes.

Income accounts:

When you have several businesses you will need to have seperate accounts for each stream of income.These seperate streams will need clear documentation.Adding these accounts together yields total revenue.

Expense accounts

Much like the documentation of the various sources of revenue, you will need documentation on the sources of expenses. Common categories of expense accounts include

Salaries and wages Telephone Electric utilities Repairs Maintenance Depreciation Amortization Interest Rent