Every business is saleable in its current state. The Xero file is what shifts it from saleable to a clean sale. Name every expense line that is a direct benefit to the owner, and the real number jumps out.
Most business owners keep their books clean enough for the tax man. That is a different job from keeping them clean enough for a buyer. At Finn Franchise Brokers, Australia’s largest seller of franchise businesses, we see it play out the same way every week. The businesses that sell at the higher end are the ones whose owners have sat down with their accountant and named every line in the Xero file that ends up in their own pocket, not the business’s.
Owner’s Wage. Owner’s Fuel. Owner’s Travel. Owner’s Phone. Owner’s Car. The buyer wants those names on the expense lines, because they tell the buyer exactly how much money the owner takes out on top of the net profit. Without those names, the buyer is reading numbers and guessing. With them, the buyer reads the file in five minutes and knows what the business is really worth to the owner.
Here’s what I’d do:
- Get the Xero file open and walk through every expense line. If a line is money going to the owner personally, name it. Owner’s Wage – John. Owners Fuel – John. Owners Travel – John.
- This is what clean books is. It makes it much easier for a buyer to clearly understand how much money the owner makes, on top of the net profit. It also makes it easier for a bank to understand when the buyer submits a loan application.
- Get your accountant to do this with you before the business goes on the market. It’s a one-off job, not an ongoing cost.
- Keep the chart of accounts tidy. Buyers and banks both look at the structure before they look at the numbers.
The difference between a business that sells at a good price and one that doesn’t usually comes down to this. Are your books ready for a buyer to read in five minutes? And if not, what is the owner actually taking home each year?
#SmallBusiness #BusinessSale #Xero #FranchiseOwners