20 Ideal Essentials – Preparing Financial Statements when Selling
A Balance Sheet is supposed to balance your Assets to Liabilities and Equity. Therefore like any simple equation, one side must equal the other.
Relative to preparing financial statements when selling your business to investors or buyers, the equation Assets = Liabilities + Equity a major report which gives investors an idea regarding the health of the company.
All Balance Sheets will calculate your Current Assets + Non-Current Assets, which should equal your Current Liabilities + Non-Current Liabilities, Share Capital + Retained Earnings.
As I mentioned before, preparing financial statements when selling to investors or buyers, it is imperative that a balance sheet it readily available for disclosure and produced by an easy to use cloud solution, accountant or CPA. Also, if this is not what you are interested in, and it was Cashflow, then follow the link to my next post.
Balance Sheet key line items for calculating
Your current assests are usually assets that either generate cash or are expected to generate cash within a year. Below are a few line items which are most times found in your Current assets accounts.
Cash and Cash Equivalents
Cash or items that act like cash (eg, short term money market funds) that a business holds.
Customers who have purchased on credit – accounts to be collected.
Goods either purchased or produced for sale to customers.
Expenses that have been incurred where the service has not as yet been “earned”/delivered. Typical prepaid expenses include insurance, rent and utilities.
Deferred Income Tax Asset
A timing difference due to the difference between accounting income and taxable income. Difference will reverse in the next reporting period.
TOTAL CURRENT ASSETS
The total current assets would then obviously be all the items mentioned above added up to give that total.
Your non-current assets have to do with mainly investing activities or assets which have been purchased with the intention to hold onto them for a number of years and may produce yeilds or gains some time beyond a year. Below are some examples of what those line items are.
Property Plant and Equipment
Physical assets used to generate income over a period of time greater than 12 months. Include things such as buildings, furniture, computers, vehicles, manufacturing equipment.
The premium paid on the acquisition of another business.
Long term assets of the business that have no physical substance. Examples include licences, patents and trademarks.
Total Non-Current Assets
This is the same as for the current assets section above where all the items in this non-current assets section will be added to produce a total.
In this line item you take your total current assets and your non-current assets, add them and voila, there is your total assets.
“There are many cloud sources on the internet that can help with your financial statements. It’s a good idea to invest in a service for your business. It makes investors and buyers lives easier”
Balance Sheet key line items for calculating
Your current liabilities are obligations based on past events or transactions which will result in an outflow of cash or some economic benefit to the oblidged party.
Supplier invoices that relate to the current reporting period but that have not yet been paid.
Liabilities that are related to the current reporting period but have not been paid. Typical accrued liabilities include compensation, audit and legal fees.
Revenues that have been collected from customers but have not yet been earned by the company (eg, performance of service has not yet occurred, or product has not yet been delivered).
Income taxes payable
Corporate taxes for the period that must be remitted to government.
Current Long-Term Debt
The amount of any loan(s) repayments due within the next 12 month period.
Current Capital Lease Obligation
The amount owing over the next 12 months for capital lease payments.
TOTAL CURRENT LIABILITIES
Here you add all the line items above and you have your total current liabilities. Simple enough.
These long term liabilities are usually obligations which are beyond a 12 month period but may from time to time be used for obligations which fall within a 12 month period depending on the intent of the obligation when it was effected.
Borrowing for business – one or multiple loans where term is longer than 12 months.
Capital Lease Obligation
Capital leases are leases that are related to specific assets. They act the same as a loan – except instead of borrowing money to purchase the item outright, the company leases the asset – but all the benefits of ownership are substantially transferred through the lease.
A potential future liability that the company can reasonably estimate (eg, from a pending lawsuit)
TOTAL NON-CURRENT LIABILITIES
In this line item you take your non-current liaibilities, add them and as easy as that, you have your total non-current liabilities.
Balance Sheet key line items for calculating
Shareholder’s equity is what you, your partners, famil and friends would have as a vested monetary interest in the company directly relative to ownership.
Shares held by investors in the company. These shares allow for voting rights and participation in profits.
Shares purchased by investors that have fixed dividends that have a priority over common shareholders.
The accumulated profits and losses of the business since inception. If the company has more losses than profit, then this would be stated as “retained deficit”.
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY
Finally this is the addition of your total current liabilities, non-current liabilities and shareholder’s equity which gives your total liabilities and shareholders equity. This should balance with your total assets result.
As you can see in the fairly short but semi-detailed iterations above, preparing financial statements when selling your business is very important when it comes to understanding your balance sheet and its components.
I hope this has been some help to you and it has been useful in some way. Be sure to pay attention to each line item and understand the correlations involved with each segment.
Data Processing and Hosting Services
The Data Processing and Hosting Services industry provides infrastructure used for a variety of information technology (IT)-related activities, ranging from online hosting to automated data entry services.
Over the five years to 2021, businesses have increasingly outsourced their IT infrastructure needs, directly benefiting industry operators.
The advent and popularization of cloud computing, one of the industry’s fastest-growing product offerings, has similarly led to greater demand.
As a result, the industry has fared well during the majority of the five-year period, with revenue expected to grow at an annualized rate of 5.0% to $196.5 billion.
However, the COVID-19 (coronavirus) pandemic is expected to lead to a decline in business investment in industry services, although this was tempered somewhat by increased usage of industry services in other capacities.
Industry revenue is expected to increase 1.7% in 2021, as the overall economy recovers from the economic fallout of the coronavirus pandemic.
Profit is expected to decline slightly over the five years to 2021, as growth earlier in the period is countered by declines in later years.
Beef and Pork Wholesaling
The Beef and Pork Wholesaling industry has experienced favorable conditions over the five years to 2021.
The industry, which serves as the middleman between beef and pork producers and retailers, is expected to perform well as both consumer spending and consumption of beef and pork rises.
Prices of key inputs, such as corn and diesel, have risen during the five-year period, increasing operating costs.
Although operators have dealt with recent studies linking beef and pork consumption to heart disease and shifting consumers’ tastes, the industry has shown resilience as operations have expanded.
Revenue has been on a steady growth during the five-year period.
However, the restrictions placed on the economy as a whole due to the COVID-19 (coronavirus) pandemic led to a decrease of 0.9% in 2020.
This contraction in revenue was offset by the increase in per capita disposable income as a result of enhanced employment benefits and stimulus checks.
As the economy begins to reopen in 2021 and the easing of restrictions occurs, consumer spending is expected to increase due to pent-up demand.
Consequently, research estimates industry revenue to increase at an annualized rate of 2.4% to $91.4 billion over the five years to 2021, with a 2.0% growth in 2021 alone due to the expected economic rebound.
Revenue growth for the Beer Wholesaling industry has been hindered by shifting alcohol consumption trends among consumers, particularly millennials.
Americans have been consuming less beer and opting for alternative alcoholic beverages.
However, the industry has continued to benefit from laws that prevent the vertical integration of breweries and retailers.
After the Prohibition era, nearly every state enacted a three-tier distribution system, requiring three distinct levels within the alcoholic beverage supply chain, including producer, distributor and retailer.
As a result, beer wholesalers have a protected role, purchasing beer from producers before storing and transporting it to downstream retailers.
Research estimates that industry revenue has grown at an annualized rate of 2.3% to $82.9 billion over the five years to 2021.
Since 2020, the COVID-19 (coronavirus) pandemic has resulted in rising demand for industry operators, with revenue projected to rise 1.0% in 2021 alone.
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