Inc: 65% of small firms carry a books problem that kills sales
Accounts built to satisfy a tax return are not accounts built to satisfy a buyer. A US report puts the share of small businesses with that gap at 65 per cent.
Inc reported this month that 65 per cent of small businesses have a problem in their accounts that can end a sale quietly, before closing.
The problem it identifies is a mismatch. Books kept to be tax-ready are not the same thing as financials a buyer can underwrite.
That distinction costs money on Inc's account, because the gap surfaces during a sale rather than before one.
The practical point for a founder is timing. A set of accounts assembled for a filing deadline is assembled to a different standard than one assembled for an acquirer, and the second standard is the one that decides the price.
No figure has been published for how much of a discount the gap produces, or for how many sales collapse because of it.
Founders considering a sale in the next year have a cheap piece of homework: ask an accountant what a buyer would want to see that a tax return does not require, and find out now rather than in diligence.