How Bookkeeping Supports a Merger or Acquisition

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How Bookkeeping Supports a Merger or Acquisition

When your tech business end goal includes making an exit, you should ensure your financial records are as transparent as possible when preparing for the sale of your company.

Entering into a merger and acquisition (M&A) is a bit like entering into a marriage: both parties need time to get to know one another and explore the potential risks of partnering together. Taking a proactive approach, by getting your books ready for review by prospective buyers, will help lay the groundwork for a successful negotiation. 

Here are some of the ways that a clean set of books - and a robust bookkeeping process – work to support M&A transactions.

Save time and confusion

Sound information is critical to the decision-making process. And since the inability to make an informed decision is what keeps many mergers and acquisitions from progressing, having a complete, uncluttered set of bookkeeping records on hand is essential.

In addition to accurate financial statements, you should be prepared to share:

  • A detailed listing of your company’s assets and liabilities
  • Copies of your customer, supplier, or employment contracts
  • Your corporate records or minute book

As a minimum, prospective buyers will want to review several years’ worth of your business financials. They may even request that an audit be performed on your accounts.

Keeping your books clean and audit-ready will allow you to deliver financial information promptly when a merger occurs, ensuring the process unfolds as smoothly as possible for everyone involved.

Demonstrate credibility as a business operator

When your books are accurate and organized, it not only makes your company more attractive to potential buyers, it enhances your credibility as a business owner and operator. 

Most merger and acquisition partners look for a company that’s well-run. Tidy books and an efficient bookkeeping process reflect well on you and your team, and show that you know what you’re doing from a financial, managerial, and operational perspective.

Having a reliable set of data on standby also means you’ll be able to respond readily to any questions a prospective buyer may have about your business practices and their results.

Get the best price for your business

Many buyers are willing to pay more for a target company that has its bookkeeping in order. Why? Because they know they won’t have to waste time amending or updating financial reports and forecasts to get the data they need to increase growth or profitability.

To get the best price for your business, give some thought to what a potential buyer might want to see in terms of your financial data - then build your general ledger chart of accounts based on that.

If, for example, you think your company will be valued based on revenue (like many small businesses in the tech industry), you can increase the granularity of your data by separating your project revenue from your monthly recurring revenue. 

The clearer and more organized the information in your accounting software is, the easier it will be to validate your operations, demonstrate their growth potential, and calculate your sale price accordingly.

Benefit from professional bookkeeping guidance

Taking advantage of professional guidance won’t just help you understand the financial side of your business better before a merger and acquisition, it will help you avoid the bookkeeping red flags that stall many M&A deals.

By working with a professional accountant or financial controller, you can:

  • Avoid the last-minute scramble and expense of bringing your books and tax returns up to date when you’re ready to sell
  • Position yourself to speak confidently with potential buyers by thoroughly understanding your numbers (like the profitability and economies of scale associated with each of your product lines, for example)
  • Ensure your balance sheet, accounts receivable, and accounts payable are always accurate, and that all of your business income is accounted for

Remember: When the bookkeeping entries and account reconciliations for an acquired company are missing or incomplete, it can be easy for a prospective buyer to assume the owner has something to hide and end their negotiations.

How to get your books clean, organized, and ready for sale

Once you’ve made the decision to sell your business, you should hire a professional bookkeeper as soon as possible to get and keep your books clean, organized, and ready for sale.

Fractional, customizable accounting services are the easiest way to match your occasional or advanced bookkeeping needs to your company’s budget.

At Enkel, we provide bookkeeping and controllership services to small and medium-sized tech businesses. From getting your books and accounting systems organized to due diligence support and financial analysis, our team of bookkeepers and controllers can help you with all your accounting needs. 

Don’t just guess at your financial numbers when you’re ready to make an exit: go into your merger and acquisition negotiations knowing what those numbers are, what they mean, and what they truly say about your business. 

Omar Visram
About Omar Visram
Omar Visram is the Co-founder and CEO of Enkel Backoffice Solutions Inc. Headquartered in Vancouver, Enkel provides bookkeeping, payroll, accounts payable and accounts receivable services to over 200 organizations Canada-wide.