Mergers & Acquisitions: Offer quality financials

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Wednesday, November 30, 2016

Q. Do my financial books really matter to a buyer? Won’t the buyer just produce their own set of financials?
A. The quality of your financials is so important. For most businesses, financials are the first thing potential buyers look at after a thumbnail outline of the nature of the business and whether or not it is a going concern. If your results are poor, that is one matter, but often the bigger issue is whether or not the results make sense from the financials that are presented.
Your financials are part of the trust that should evolve between seller and investor. If there is clarity, trust can develop even if there are some challenges. If there are a myriad of difficult-to-decipher add-backs that create remarkably positive results, distrust is usually the result.
In our experience, the quality of financials is a projection of the business personality of the owner, which reflects the larger culture of the business enterprise. How attentive is the owner to the daily needs of the business, including employees and customers?
The quality of the financials often correlates with how active management and employees are in the operational accountability of the business. The clarity of the financials is especially important for businesses that are not too dependent on the owner and are relatively transparent.
Buyers, customers, and funders don’t expect perfection. If they are successful themselves, they understand the challenges that impact every healthcare business. They do, however, expect to be able to understand the operational truths of your company, which is why the quality of your financials is very big deal.
Brad Smith is managing director/partner at Vertess. Reach him at bsmith@vertess.com.