During the month of February, when companies are rushing to close their books and give their accountants what they need to generate their year-end financial statements and tax reporting, I am reminded of the song, Get It Right the First Time by Billy Joel.
It is true that financial statements look back while business owners look forward, but those financial statements tell a crucial story to the owner’s stakeholders, including their bank, investors, their board of directors, and others with an interest in knowing how the company has performed. Financial statements are also the gauge by which potential buyers measure the company and derive its value or at least the value that they are willing to offer to purchase the company.
So why then is it so important to get it right the first time?
If we think of financial statements as a report card on the fiscal health of the company and know that decisions will be made based on that report card, it certainly is important for the numbers to be accurate. But, what if in the rush to generate the report, the numbers are incorrect? What if an owner discovers that something such as inventory costing has been done incorrectly over time and it needs to be restated? Explaining this to a potential buyer can raise doubts about the accuracy of the numbers and may cause them to look deeper into the accounting practices of the company, or may cause them to change their offer, or worse, walk away from making an offer altogether.
Timeliness in reporting is important, but accuracy is more important. When we put together marketing materials for a company that we are representing for sale, especially this time of year when most companies are compiling their year-end financials, we spend time and ask questions. We want to be sure that the financial picture that we portray for the company not only makes sense and reconciles from year to year and with other segments of the company’s reporting, for example, the company’s sales to the top 10 clients, or commissions paid to the top 10 sales representatives, but that under examination, those representations will prove out. When we put together the marketing materials, we are also populating the Data Room for due diligence when the time comes for a buyer to dig deeper. The goal is always to avoid any surprises or discrepancies, and to be as transparent as possible.
Have questions? We are always happy to talk.