Businesses have certainly seen a variety of conditions in the last conditions, both up and down.
Businesses track their performance using the standard financial statements such as balance sheets, profit and loss (income) statements, cash flow analysis and tax returns.
Cash flow analysis is particularly important, understanding how the money is used in the business over time.
These performance tracking statements and documentation should reflect the ups and downs of a business over time.
Recasting or restating these financial statements are important in determining the value of a business prior to sale. Recasting means a deep analysis to make sure all relevant adjustments are accurately shown. This is one of the things that your investment banker and valuation professional should be helping you with.
Recasting identifies things such as non recurring revenues, excess expenses and discretionary expenses. The recast financials provides an economic, rather than an accounting, view of the company. It then permits a realistic comparison with other companies, on an apples-to-apples basis. And it allows a comparison with other investment options too.
Quite a bit of work and effort goes into knowing the value and then selling a business. Recasting the financials allows the owner to know the actual, true value of a business. Then realistic, accurate expectations can be established which will allow the whole process to go much easier.
Knowing how to do this and to include and exclude requires experience and training. So when selling your business, it is best to utilize an outside valuation professional.
