Being in small business management and consulting for the last ten years, I have seen some common denominators.  Once major commonality is a blatent disreagard for business profit in favor of owner perks.  The reasoning behind this, of course, is that come tax time, the IRS will take a third of my money.  If I get bonuses, car payments, etc., I get more money and my business incurs less taxes.  Win-Win, right?

 Wrong.  

 Death is an absolute certainty, which means you cannot own your business forever.  In fact, it's highly likely that you will no longer be able to manage your business long before you pass on.  For this simple reason among many others, it is absolutely imperitive that you create value to your business.  You may not be Donald Trump, but you can create value in even the smallest business.  One of the easiest ways to do that is to ensure you have some good-looking financial statements.

 If you come to a point where you want to know the value of your business, the first things a CPA, consultant, or broker will look at are your financial statements.  Out of the financial statements, the biggie is your income statement otherwise known as P&L.   The income statement gives the potential buyer a snapshot of how much money you brought in and how much you spent.  As you may imagine, time in the red and breaking even does not reflect well on the operations of your company.  Here are five tips to ensure, when the time comes, you have some nice-looking financial statements.

1. Create a budget with financial forecasts.  Plan out how much you will need to make and spend in order for your business to have modest growth over the next few years.  That way, you wont be content with just "making salaries" but you will keep at it and sell harder to reach your goals.
2. Keep accurate books.  Your financial statements are only as good as your record keeping.  If you don't have the time to do your books right, hire a service.  A good bookkeeper will help you reach your financial goals by analyzing the numbers, not just reporting them.
3. Invest, don't spend.  Just like in personal life, money is best put into investments.  Don't buy an unnecessary company car- spend more on marketing, or upgrades that will increase the overall value and efficency of your business.  Never spend just for the sake of spending.
   
4. Pay down your debt.  There is nothing sweeter than cash on hand to show how well your business is doing; however, if you have a bunch of debt, the cash doesn't mean anything.
5. Have an audit done.  No, not by the irs, by a CPA. Let them complete a thorough, internal audit once in a while to ensure you are doing a good job keeping track of everything.  This will show a potential buyer that the business has fincial integrity.

Admitadly, none of these tips are quick.  They will all take time and persistance.  In the end, though, simply having some nice-looking financial statements will give you options when you're ready to exit your business.

 Mike Freeman

I love recordkeeping 

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