Think 5 years out.
As time has passed, I have had some clients suddenly want to sell their business and retire. The problem is often the word ‘suddenly.’ Your business, for your duration in it, is your accomplishment.
Allow me to ask you some questions?
Did you want full value, the fair market value, or did you want 10 cents on each dollar invested?
Are you interested in setting up your business for the best possible value?
Setting up your business for sale is a lot like running your business the most profitable way and showing the best possible cash flows. It also means the buyer wants to see clear business records and trace the sales process (part of due diligence).
When I ask the common business owner questions about profitability, I find most small shop owners know the prices of most of their merchandise (or services) and the gross margin in their head (the selling price less direct costs). This is even true in businesses that gross several million dollars in sales. So how do we punch that small business through the eye of the needle into a $10 million gross sales business or from $10 million how do we get to $50 million, so that the shareholders & operators can achieve their goals of life style and income? Or, how does the owner get the best value in a sale?
Public companies are required to have certified audits. Certified audits are when a CPA firm comes in, as a disinterested third party, to validate that the financial statements are free from material misstatement. Which means, they seem correct to the CPA firm after careful examination according to strict guidelines, analysis, and 3rd party confirmations. In addition, public companies have budgets and compare their budgets to actual results all the time. They adjust their budgets sometimes, and generally do a fine job at working towards meeting their goals.
The problem with the ‘mom & pop’ shop is that there are no budgets. Sometimes they aren’t getting financial results on a timely basis (as they are waiting for year-end to give their accountant all their banks statements and other information) and budgets? Who the hell does budgets?
Companies looking to grow sales do budgets. They sit down at a sales meeting and develop a plan on how to increase sales. Then they tone down their dreams and aspirations into achievable monthly sales goals. They measure the progress towards their sales goals daily and weekly. Always keeping the target in their sights, they check results against the targeted budget.
Most companies need to realize that their staff, or at least some of their employees, are key employees. Just like a fine piece of equipment, you need to treat your employees properly. Offering health insurance, pensions and sick time, having a yearly Christmas party all increase the reliability (and moral) of your employees. It makes them want to stay instead of constantly looking for a job for more money.
Many times, I have found inventory not carefully looked after. Either the inventory is short, or damaged or never returned is not thrown out and written-off! The problem here is that the controller’s job is really several jobs in most small companies. The job of budgets, securing assets & IT, all become too much for many a controller. The Company has the controller doing payroll, supervising bill paying, invoicing and answering the president’s special projects. Some of these controllers can’t even pop out a general ledger and an internal financial statement on a timely monthly basis. The truly important work of growing the company is overlooked by the necessary daily work all the time.
My job, as a profitability consultant, is yet another area, internal controls. I first want to verify the financial results are reliable and free from mistakes and sticky fingers. The trust that some of my own clients have in areas which go against all accounting and internal control standards, to this day, amazes me! Unless we are talking about a sole owner, in most cases, custody, authorization, and reconciliation should be done by separate people. I do not object to an owner and wife writing, signing and reconciling their Company checkbooks. However, in a company with multiple employees, having an employee do these three functions is like an unlocked safe. How long does it take to corrupt most people? All it takes is a personal serious need and then ….
Internal audit can identify deficiencies just waiting to cost you by the government. Sales tax is truly my favorite item here, but company income tax audits, payroll paperwork deficiencies, improper management of health insurance, or mishandling employees can cost you a bundle. I mention sales tax atop because few are aware the requirement to pass a sales tax audit is 100% accuracy. NY State wants ALL customer and vendor invoices for 3 years; a clear general ledger and 3 years of business bank statements. Special Note: No NYS sales tax auditor believes your deposits alone indicate all of your sales (I’m just saying).
In conclusion, if you want to grow or sell, let’s sit down and talk. I need to get to know you and your operations a bit before I determine if I can help you and your company.
Our first meeting is at no-charge to you and if my services do not at least pay for themselves times three, you can have your money back!
Harlan S. Kahn, CPA and Profitability Consultant.
718-218-0200 or schedule your appointment online here: https://parisac.acuityscheduling.com/