If you’re positioning your trades business for sale, or just trying to grow it, an experienced bookkeeper can provide financial intelligence and insights.
With many young people looking at the trades as a cost-effective alternative to careers that require expensive college degrees, this could be an ideal time to sell the trades business that you’ve worked so hard to build. Here’s what you need to know to make the sale go smoothly — or, if you’re looking to keep it, foster its long-term growth.
An Industry-Driven Chart of Accounts
Is your chart of accounts (COA) set up in a way that best reflects how your trades business operates? If your answer is, “What’s a chart of accounts?” — well, that’s a good indication you need professional bookkeeping support.
Done right, bookkeeping involves much more than merely entering numbers into one of the many popular apps available to business owners. Bookkeeping should also provide invaluable financial intelligence about your business. And that starts with your COA.
Basically, a COA breaks down revenue and expenses into granular detail so you can identify your greatest (and weakest) sources of profit as well as the greatest drains on your resources.
For instance, let’s say you’re a commercial electrician. And let’s say roughly half of your work consists of redoing the wiring in existing commercial spaces that are being remodeled, while the other half consists of clean-sheet-of-paper wiring projects for new construction. Which type of project is more profitable?
The answer might surprise you. And if one type of work is clearly more profitable than the other, then focusing on getting the right projects could make your business more attractive when it’s time to sell.
Up-to-Date, Accurate Financial Information
When it’s time to sell. That’s a key phrase. Even if you’re not thinking of selling your trades business this year, that could change by next year. So you should approach your bookkeeping and financial records in a way that keeps your business in a constant state of readiness.
History shows that it takes a minimum of six months to sell a business. If you’re not prepared, it will take longer — and if your records are thoroughly disorganized, that could scare off prospective buyers altogether.
Keeping good records is simply good policy even if you hope to keep your business forever. For one thing, you need to be ready in case you get audited by the IRS.
Here again, pro bookkeeping support can be vital. A good bookkeeper can work with your CPA to ensure all of your information is accurate and up to date. This helps you not only avoid IRS penalties, but avoid overpaying as well.
Be Ready for Every Opportunity
Rather than sell your business, you might decide you would rather grow it. That, in turn, might require outside investors or financing. But the preparation is essentially the same. Any prospective buyer or investor will conduct due diligence. And they will want to see:
- P&L statement: This summarizes where your business stands at a given moment by measuring how much revenue you have coming in (profit) versus your expenses (loss). Obviously, the more the first number exceeds the second, the better.
- Balance sheet: This is similar to a P&L, but it also takes into account your overall financial structure, including any money that shareholders have invested.
- Cash flow statement: This is another financial document that is subtly different from the first two. Basically, it takes into account not just your P&L but also any debts you incurred when your business started, such as a bank loan. Here’s an analogy: Say you invested $1,000 in a stock and sold it a year later for $1,500. Your net gain would be $500 because you have to account for the original $1,000 that you put in. The relationship is similar in your business bookkeeping: Generally, your positive cash flow will be less than any profit on your P&L because you have to account for any debts on your balance sheet.
- Tax returns: Prospective buyers will want to see several years’ worth of tax returns to get a sense of how healthy your business has been over time. They’ll also want assurance that you’re in compliance with the law.
- A business plan: Ideally, you created a business plan before starting your trades business. This document lays out your long-term projections for the business along with the research that informed those projections and the steps you intend to take to meet them. Now, maybe when you started out, your business plan amounted to a simple idea that you never actually wrote down: “I’m a good plumber. I know from working for somebody else that there’s a huge demand for capable plumbers in my area. So if I start my own plumbing business and work hard, I can make a good living and be my own boss.” And kudos to you for making that work. But if you plan to sell your business, you’ll need to create a written business plan that provides actual numbers to verify what you’ve done and the rationale behind your approach.
Most Important: Professional Bookkeeping Support
If that all sounds like a lot of work, that’s because it is. And if you’re too busy meeting the demands of your thriving trades business — a business that you hope to sell someday so you can enjoy a comfortable retirement — that’s all the more reason to enlist professional bookkeeping support.
At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.