Business owners often underestimate the importance of keeping and maintaining clean records, which is much easier than scrambling to get things in order when it’s time to sell.
Recordkeeping might seem like a pain, but being too relaxed or careless with it can negatively impact your business and your ability to sell it. Your books of accounts show your company’s financial standing and its potential for increased profitability and continual growth.
What Does “Clean Books” Mean?
Clean books are the foundation for good business administration. The term “books” refers to the arsenal of a business’s financial information, which business executives refer to to make informed decisions. Maintaining “clean books” means keeping the financial records organized and up-to-date in a good and honest manner for sufficient cash flow management.
Failing to maintain clean books results in inaccurate information, inconsistencies, and disorganization. You can end up scratching your head, confused about a number of important details. This can slow down processes, such as claiming receivables from customers or delaying payments to vendors. These can substantially disrupt cash flow, which is never ideal when running a business.
Your books should be well laid out and easy to manage. They should include accurate balance sheets, income statements, matched expenses and revenue, reconciled bank accounts, and any records of important accounts at the end of each month. Clean books also contribute to an optimal amount of inventory.
Why Clean Books are Important
If you’re interested in selling your business, you will either thank yourself for maintaining clean and organized books or grow frustrated at yourself for not being diligent with your books. If you’re in the latter category, clean them up before selling. Below are five benefits of having clean books. They will:
1. Draw in Prospective Buyers
Once your HVAC business is on the market, prospective buyers will be interested in your company’s financial history from the last three to five years. Clean books show the positively healthy state of your business, which is attractive to potential buyers.
Why would someone buy an HVAC company with disorganized or spotty financial records over one with clean books? It just wouldn’t make sense for them. Clean books make their life easier and allow them to compare your business with others. However, inaccurate financial books lead to inaccurate growth estimates. Business decisions from incorrect financial information are bound to go up in flames.
Good financial records show off the quality of your company, create a good impression on potential buyers, and make every process smoother and more straightforward. Messy books make buyers raise an eyebrow about a company’s financial state, leading them to undervalue your business or lose interest in the sale.
2. Pass Due Diligence with Flying Colors
When you have found a buyer interested in buying your company, you must undergo rigorous due diligence. This process protects the buyer from identifying any legal, financial, or liability issues. Due diligence is one of the most essential parts of the selling process and can make or break a sale.
Accurate, organized, clean, and current books ensure your business will pass the due diligence process with flying colors. Your clean books will show that you are serious, professional, honest, transparent, and have nothing to hide. While your clean books will ensure your confidence in the due diligence process, they will also build confidence in the buyer, who will feel even better about moving forward with the sale.
3. Act as a Guide for Business Decisions
As a business owner, having clean books is one of the most incredible feelings. Clean books empower you to make informed business decisions. They help to facilitate your financial decisions, whether it be purchasing new machinery and equipment or getting a clear picture of available cash, payables, account receivables, and income statements.
Accurate financial records paint a true picture of a company’s financial health, even when cash levels might be misleading. For example, retail business owners who collect payments upfront from customers but pay suppliers later may feel secure due to a healthy cash balance while overlooking overdue payables. Conversely, a low cash balance might cause unnecessary concern if the accounts don’t clearly reflect pending receivables.
Clean books also help identify patterns in your business and help you spot spending trends to manage spending and reduce expenses. Clean books also act as a guide to help a business owner decide when to sell their business, how to sell it, and how much to sell it for. Clean books make it easier to formulate an accurate HVAC market valuation.
4. Make Tax Season a Breeze
Clean books lead to easier taxes. Insurance and government agencies love to audit sales tax, income tax, workers’ compensation, liability insurance, payroll tax, and more. Nobody likes getting audited, but clean books ensure an audit is not problematic for your business.
Books that are not clean and tidy may lead to inaccurate financial reporting, which can negatively impact your business. If you’ve messed up your financials and filed your taxes incorrectly, you can face expensive fines, costly litigation, and even jail time for breaking the law–even if it was an honest mistake.
5. Make Transitions Easier
Maintaining accurate and up-to-date books reflects the company’s financial position and simplifies preparing year-end financial reports, statements, and accounts. Clean books help predict business and track growth, which meets goals and makes a smooth transition to a new owner attainable. Clean books also allow for easy financial tracking, making it easy to determine when the company’s value hits your exit goal and when it’s time to take the plunge and sell.
Clean books help new owners keep the business running smoothly. Potential buyers can use financial records to study the current business model, plan to improve operations, and nurture the company under their ownership.
The goal is to have clean books from the start, but it’s never too late to make positive changes, get your books in order, and create new habits that will make all the difference in your day-to-day business. Ensure your financial record is in order before a buyer, government agency, or bank mandates it. Clean books are nearly a requirement for a smooth transition when selling your HVAC business.
