“Spring Cleaning” Your Business
At Quantive, we work with hundreds of companies every year to provide expert support for middle market business owners and entrepreneurs. In addition to helping our clients grow or get ready for mergers and acquisitions, those services include a business valuation.
Many of our clients simply want to fortify their exit strategy. They know that making business valuation a priority gives them a deeper understanding of the market value of their companies for both business transition and exit planning before the owner sells the business.
Your business exit strategy would be analogous to getting your car in shape before trade-in. If you’ve done the preventive maintenance and service, the car will be worth more. In business valuation, the concept of preventive maintenance is the same.
In our blog “What Data is Required for Valuation?”, we reviewed the accounting documents and data required for business valuation. The Quantive team has performed valuations for hundreds of companies over the years. As a result, we’ve encountered our fair share of businesses with old, outdated, or plain wrong financial records. That aging and clutter can make the valuation process take longer or can even stop it in its tracks.
This blog will demonstrate how having the process of spring cleaning on an annual basis can give your company a fresh start each year and a leg up when it is time to think about an exit strategy before selling the business.
5 Ways to Spring Clean Your Business
Throw out what you can, but keep what you must.
This applies to both paper and electronic business records. The quick answer to how long you should keep your business and personal financial records is this: as long as those records serve an important purpose, but not before or beyond what accounting and IRS rules specify.
When you’ve thrown out and safely disposed of all those old receipts, bank statements, and paper no longer needed for your alibi files, rent or buy a reliable scanner and put someone to work to archive the records you need to keep either temporarily (e.g., tax records for seven years) or permanently (audit reports forever).
Buy or rent a paper shredder, or hire a trusted disposal service. Be especially careful in supervising the scanning process and disposing of all that paper, mainly if it contains personal information. It’s critical for both your clients and your reputation that sensitive documents end up shredded securely and not in a recycling bin somewhere for anyone to find.
Before the paper goes to the shredder, ensure it is checked carefully against the digitized version, adequately cataloged, and readable. Finally, make sure you have a backup of the digitized files and the backup. Maintain your backups offsite and keep an insurance hard drive backup “air-gapped,” i.e., offline, as your last line of defense against ransomware and other cyber threats.
Do a “deep-cleaning” of accounts.
As the foundation and epicenter of all your business’s transactions and resulting financial records, your accounting books connect the past with your company’s future. Each year, you should ensure your accounts are in good shape. Mini cleanups should precede that yearly spring cleaning throughout the year, where each end-of-month iteration is like a mini version of the year-end process.
The cleaning process involves a systematic organization and review of your accounts to sort your receipts and digitize what you can. Likewise, always keep your personal and business expenses separate.
You can keep your accounts clean with accounting software that automates all that nitty-gritty stuff so you can stay clear of accounting nightmares. You can complement that software with time-saving apps and gain the power to track your business finances. It’s key that this process remains agile over time. You should always look for ways to streamline your process as technologies progress. Your spring-cleaning resolution should be to take some time out of your schedule to learn about what’s out there in the world of accounting software improving applications can do. The good news is that those applications are available on the cloud, and you only have to pay for what you use.
Now that the clutter is gone, take a step back and see where your business stands.
The clean slate you should have after spring cleaning provides an excellent opportunity to see whether your business is a rock in the stream of revenue and profit or foundering in a sea of financial chaos.
At this point, you should take time out and review:
Outstanding expenses and bills–Your business reputation depends on the goodwill maintained by quick accounts payable payments. Check the fine print on your purchase agreements. Are discounts due to expire? Should you renegotiate or renew those discounts and terms of service?
Invoices—Go after the money owed to your business and see which customers typically pay late. If your business has a backlog of overdue payments, your valuation is affected adversely.
Your payroll and employee expense accounts—Update staff payroll and tax deduction records. Remind employees to keep their W-2 forms current. Make sure your employee timesheets and reimbursable expense accounting are working as they should. Do a spot audit of your employee expense accounting as a way to keep honest people honest.
Quarterly Tax Returns—Assess the impact of business tax rules on your compliance plans and bottom line. Are tax budget line items still in synch with scheduled tax payments?
Focus on financial goals for the upcoming year
Decide what you want to do during the next 12 months and where you would like your business to be. Whether it is improved profitability or efficiency in operations, your plan should be realistic, achievable, and articulated with realistic goals and objectives. This would be an excellent time to dust off your business plan and revisit it. The business plan, it should be remembered, was the foundation of the company and played a significant role in luring investors.
Revitalize your marketing strategies
Spring cleaning is likewise an ideal time to take a fresh look at your marketing strategies. In these days of social media influencers and fast-track email marketing, your business has to keep up and hop on board with the new marketing trends or miss out on opportunities.
Your plans for the year should include an honest analysis of the previous year’s data and revisiting your brand goals and reputation. You might also consider attending trade conferences or expositions to keep your creative synapses firing.
Learn more about how Quantive can be your go-to source for business evaluation services for entrepreneurs and owners seeking exit strategies. Get in touch, call us, or just send old-fashioned snail mail. We’d love to hear from you.