Business exit balance sheet

March 18th 2019 / BY: Wisteria

Preparing for an exit: Balance Sheet

When it comes to selling your business, preparation is everything and it must start years beforehand.

There are a number of key elements that require focus:

  • Establishing the business’ story (history, current standing and prospects)
  • Selecting the right accounting policies
  • Ensuring that your tax position is correct
  • Being ready for due diligence

This paper summarises the accounting policies and raises points that you will need to consider to ensure that your balance sheet is positioned in the best light.  There will be a separate article on the profit and loss account and other areas of your business that you should focus on.

Fixed assets depreciation and amortisation policy – ensure that you have fully considered the life of your fixed assets and that you are depreciating them at the right speed.

Fixed asset register – ensure that you maintain a detailed register listing of all assets, the their location.  When it comes to due diligence you will fail this part without a full register.

Fixed asset write-offs – ensure that fixed assets that are no longer used in the business are disposed of in the accounts.

Bank – ensure that non-bank accounts such as payment processors are not designated as bank accounts.  Only banks registered with the Prudential Regulatory Authority (or alike) should be categorised as a bank.

Stock – scrutinise your method of valuation; and ensure that stock takes are regular.

WIP – ensure that you consider your normal level of recoverability when valuing WIP.

Trade debtors – ensure that old debt that is no longer being chased is written off.

Bad debt provision – ensure that you have realistic provision policies and of course ensure that you are specifically providing in order to optimise any tax benefit.

Intercompany debt – ensure that agreements exist and interest and charges are at a commercial arms length rate (especially if the related company is registered abroad).

R&D tax credit – most companies will only recognise it on confirmation of acceptance or on receipt; so ensure you submit any R&D tax credit claim as early as possible.

Deferred income – ensure that your revenue recognition policy is correct especially in light of the new accounting standards.

Director’s loan – if the director’s loan is genuinely a long term loan then put the paperwork in place and formally move it into long term.  If you have no intention of the company ever paying it back until exit then consider capitalising it and moving it into equity.

Finance lease obligations – ensure that you are computing these correctly.

Delapidation provision – ensure that you have fully considered these.

Holiday accruals – among your accruals ensure you fully consider this.

The above are just some of the areas within a balance sheet that require focus. However, every company has its unique profile and it would be worth critically reviewing all corners of your balance sheet.

We have published a list of critical success factors when selling your business, and if you have any questions, feel free to contact us today.