Selling your ecommerce business can be an exciting journey. Many business owners fail to realize the actual worth of their business. One of the key reasons for this is the poor maintenance of finances. Different businesses use different methodologies to track their finances. Irrespective of the methodology, the key aspect is to track your finances in a timely manner and regularly update them. In this article, we will understand the importance of updating your finances and 4 main reasons as to why strong financials are important while selling your eCommerce business.
Updating Your Financials Help you Understand your position
If you have an ecommerce business for sale, it is crucial for you to maintain your balance sheet statement and other financial records. Let us have a look at the 5 main benefits of periodically updating your balance sheet.
- Spot Problems Ahead
It is always best to stay prepared in case of any discrepancies in your finances that can be observed in your balance sheet. There will be a certain amount of time involved to rectify these errors and compensate for the mistakes. So, make sure that you track your finances regularly. This can help you identify discrepancies much earlier and prevent them from growing into full-blown problems. For instance, if you maintain consistent balance sheet reports, you can identify if your business is suffering from a lack of cash flow. This is a major problem that leads to the failure of many businesses.
- Keep Potential Buyers Well-Informed
Before you sell your company, it is best to start by researching potential buyers. When you identify these potential buyers, it is best to understand their approach to buying a business. Irrespective of the acquisition type, every buyer aims to understand the financials of the company they are planning to buy. So, make sure that you have your balance sheet updates as it can help them understand the financial health of your company.
- Understand Risk and Return Capacity
By closely tracking your financials, you will be in a position to monitor your current assets as well as long-term assets. This can help you estimate your potential risks as well as returns associated with your ecommerce business for sale. You can also assess your ability to generate cash flow and sustain the operations required to run your business. For ecommerce business owners, this is key as it helps them keep their business in check.
- Maintain sustainable Debt Levels
In case you have a huge debt that has to be resolved before selling your ecommerce business, it is ideal to allow yourself some time to settle the debt. If your liabilities exceed the amount of cash or assets you have in hand, you will most likely have to borrow finances from another source. Identifying your outstanding debt can be done by accurately maintaining your balance sheet in a timely manner. This way, you can successfully avoid a long-term financial crisis.
- Grow Assets and Minimize Liabilities
When you actively track your finances, it gets easier to determine the number of assets you have. Once you assess the assets and liabilities of your company, work towards increasing your assets and decreasing your liabilities. Once your assets exceed your liabilities, your net worth grows along with it.
4 Reasons Why Strong Financials Are Important While Selling Your Business
- Increase the Market Value of Your Business
Maintaining a clean and updated record of your finances can help you arrive at the right value of your business. In case you maintain inaccurate financial statements, it is possible for you to end up making a below-value sale. This leads to an overall loss for you and your business. For instance, if your financial statements fail to take into account the total revenue you made, the total revenue as per the books would reduce. This would make your business a less attractive option for the buyer. In addition, you would also have to sell your business at a lower valuation.
- Avoid Litigation
In case there arises an issue after you sell your eCommerce business to the buyer, the buyer has the leverage to report inaccurate financials as the root cause to get compensated. This can lead to litigation where you may be required to follow legal procedures and pay a fine that is agreed upon by both you and the buyer. While you can’t control the means by which the buyer can sue, it can help to have an updated record of your financial status to avoid this problem of litigation on the whole. It is best to perform an audit of your financial statement before you agree to sell your business.
- Avoid Losing the Sale
Before closing the deal on a sale, many buyers start with a letter of intent. This letter of intent allows the buyer some time and provides them with a due diligence period to run a background check, investigate, and evaluate the business. Having inaccurate financial statements acts as a major red flag for potential buyers as it is a sign of insincerity and lack of proper management. Inaccurate financial statements can also provide a false value to your business thereby causing potential buyers to opt-out of buying your eCommerce business.
- Turning the Deal In Your Favor
When buyers look for an ecommerce website for sale, one of the first parameters that they check is the valuation of the business. In case your financial statements are incorrect or inconsistent, the actual valuation of your business would not be reflected. If you maintain a proper record of your financials., you would be able to improve the selling price of your business with the buyer.
In a Nutshell
Before selling your ecommerce business, make sure that you have performed a financial audit to ensure that you have all the financial documents in place. Maintaining accurate financial records can also help during the selling process of your business without any hassle as well as help you get the right price for it.