Are you thinking of selling your business in the next five years? If you are, have you considered the benefits of having your financial statements audited? A lot of owners baulk at the cost of an audit. However, the benefits of an audit have the potential to far outweigh the costs.
Following are reasons why an audit will assist you when you are thinking about selling your business:
Improving the Accuracy of Information
An audit will require the business to adopt the measurement and recognition criteria of Australian Accounting Standards in relation to all assets and liabilities. The accounting policies adopted by the business will need to be reviewed and amended where necessary. This may also result in a restatement of profit.
Improving the accuracy of information will mean fewer adjustments on completion of due diligence by the buyer. This should mean that the purchaser’s offer is consistent with the seller’s expectations.
Shorten the Due Diligence Period
Having credible information (audited financial statements) can potentially shorten a buyer’s due diligence period. Invariably the buyer will be able to place more reliance on audited financial statements and potentially reduce the amount of due diligence work that is required to be completed. The audit of financial statements will also mean that the vendor will have access to reports and data the buyer is likely to request.
Improving efficiency and effectiveness of processes
When a purchaser is undertaking due diligence, they will usually want to see three years of audited financial statements to review the consistency of earnings and financial benchmarks. This will mean the first audit should commences some time before the actual sale of the business.
The audit may identify processes and procedures that can be improved. The improvement in the processes and procedures may lead to an increase in profitability of the business prior to the sale. In turn, the increase in profitability may lead to an increase in the sale price of the business.
A quality audit can deliver a more realistic sales result and can also add value along the way through improved processes and risk reduction. An audit should be seen as an investment. Your business is likely to be one of your biggest assets. Maximising its value through an audit should be a priority.
Speak to one of your local Accru advisors on how an audit can improve your business.
