Marketing spin can get you attention, but numbers are the way the "big boys" keep score.

You'll want to have five years of audited financial statements when the time comes to sell your business. This doesn't mean that you have to have annual audits beginning with your first year of business. It doesn't even mean that you have to have annual audits done when you think you might be within 5 years of selling, it does mean that your books need to be "auditable" for that period.

Topic for Discussion: When I do decide to sell my business, how do I make sure that I have the necessary books and records to satisfy the buyer?

Answer: When the buyer or his/her representatives comes in to evaluate your company, that process is called "due diligence." You want to pass due diligence with flying colors. The single most important thing you can do to ensure this is to keep great books. What do we mean by great books? We mean annual financial statements and the underlying records that support those financial statements.

It is only with the bottom line results of your company that the buyer can calculate EBITDA and his or her return on the purchase price. Nothing makes your numbers more credible than if they are certified and attested to by your CPA. And most buyers want a five year track record of audited financial statements.

If you are in the service business, and you maintain good records, the auditors can come in at any time and audit ancient books. If you have a significant what auditors call "material," investment in inventory, then as soon as you know that you might be within five years of selling your business, you should have your CPA observe your annual physical inventory. CPAs call this an "agreed-upon procedures engagement." They verify the counts/quantities now, and the costs later. This is far less expensive than an audit but does mean that you can procure audited financial statements at a later date if desired.

You think about it: What kind of records do you keep now? How long would it take for you to be ready to open up your books to a potential buyer?