An illustrative composite client situation
This is an illustrative composite client situation. It does not describe one identifiable client or a transaction completed by Pillar.
The owner of a New Zealand company received an unexpected enquiry from another business in the same industry. The message asked whether the owner would consider a sale and requested recent financial information. The business was trading normally, but there was no information memorandum, the latest management accounts still needed explanation, and several customer relationships depended on the owner.
The first question was: “What is the business worth, and what should I send the buyer?”
Those questions need a controlled sequence. The owner should first understand the approach, protect confidential information and define the possible transaction. Financial records can then be assembled and tested before a valuation is asked to answer a specific question. An early enquiry alone does not establish a buyer’s seriousness, a sale structure, a price or a likely outcome.
Clarify the approach before opening the files
Record who made contact, their stated reason and exactly what they asked for. The owner may not yet know whether the buyer is interested in the operating assets, shares in the company, a product line, intellectual property or a commercial partnership. Those possibilities carry different accounting, tax and legal questions.
Sensitive records should not be sent in response to a short introductory message. Business.govt.nz recommends preparing an information memorandum while leaving out confidential information that could be leaked. The owner and lawyer should decide how the buyer’s identity and authority will be checked, what confidentiality document is needed and which information can be released at each stage.
A staged process can begin with high-level, non-identifying information, followed by a controlled data set once the buyer and confidentiality terms have been reviewed. Customer names, employee information, pricing details and contracts need particular care. The website cannot decide what a particular buyer should receive.
Make the financial history explainable
The first seller-side pack usually starts with signed annual financial statements and tax returns, current year-to-date management accounts, a balance sheet, cash-flow information, budgets or forecasts, and aged receivables and payables. The periods should reconcile to the underlying ledger and tax records. Material changes in revenue, margin, costs, working capital or debt need an explanation supported by records.
Owner-managed businesses often need a separate schedule for owner remuneration, related-party balances and expenses that a buyer might question. The purpose is to show the recorded history clearly and identify possible adjustments for professional review. It is too early to assume which adjustment a buyer or valuer will accept.
Inland Revenue’s record-keeping guide says records should be sufficient to calculate income, expenses and tax liabilities and allow the accounts to be confirmed. It lists invoices, bank statements, wage records, ledgers, debtor and creditor lists, stocktake figures, fixed-asset records, financial statements and business sale agreements among the records businesses may need. The same guide notes that accurate records let potential buyers check business performance.
If the accounts are incomplete, the owner can still begin the conversation with advisers. The gaps should be listed and resolved before the seller presents the numbers as decision-ready.
Connect the accounts to what would transfer
A buyer will look beyond the headline profit. Business.govt.nz describes due diligence as checking assets, liabilities, commercial potential, contracts, key staff and reliance on customers and suppliers. Its seller guidance also asks owners to identify assets and liabilities, maintain business equipment, address legal and staffing issues, and document how the business operates.
The seller’s working list may include equipment and the fixed-asset register, stock, leases, loans and security, customer and supplier agreements, licences, intellectual property, employment arrangements, disputes and other obligations. An accurate asset register can support the balance sheet and a future business sale.
Owner dependence deserves its own note. Record which sales, customer relationships, approvals, technical knowledge and daily decisions rely on the owner. Also record what is already documented, delegated or covered by employment and supplier arrangements. This helps the advisers understand what a buyer may be acquiring and what transition questions remain. It does not predict how the buyer will price that dependence.
Define the valuation question before choosing a method
“What is the business worth?” is incomplete without a purpose, subject and date. The accountant or valuer needs to know the proposed transaction, what assets and liabilities are included, the interest being valued, the financial information available and the date at which the conclusion is required.
The seller’s expectations and the buyer’s offer may use different assumptions. A current owner may include personal effort that a buyer would need to replace. A buyer may plan to combine the business with existing operations. Forecasts may depend on customer retention, staff continuity, capital spending or contracts that are still uncertain. Those assumptions should be written down and tested rather than hidden inside a single number.
Pillar’s business valuation and transaction support can help define the valuation scope and examine the financial information. The business advisory service may be relevant where forecasts, performance trends or owner dependence need to be tested. A lawyer should advise on confidentiality, heads of agreement, sale documents, employment matters and legal rights.
Records for the first adviser meeting
Bring the original approach, any proposed confidentiality terms, recent financial statements and tax returns, current management accounts, budgets and forecasts, aged receivables and payables, bank and finance records, the asset register, stock records, major contracts and leases, staffing information and a list of customer, supplier or owner dependencies.
Mark what is current, what still needs reconciliation and what is commercially sensitive. Note any target timing, the owner’s reasons for considering the approach and the decisions already facing the business. Do not send confidential customer, employee or transaction files through the website form.
To have a Pillar accountant assess the starting information and confirm the appropriate accounting or valuation scope, use the published phone details or enquiry form to contact Pillar. The final value, disclosure process, tax treatment and transaction terms must be decided from the actual records with the appointed advisers.