Can you pass the profitability test?

The second question a buyer is going to ask you is how much profit the company makes. The first question in case you’re curious is how much do you want for your business. You don’t have to have a ready answer for that first question, a ballpark will do, but you MUST have a ready and provable answer for question #2.

If you are like most small business owners the profit showing on the bottom line of your profit/loss report isn’t the true representation of your profit. In order to show the profit in your business you need to disclose the full amount that you as the owner are taking from the business annually.

The number might be something you haven’t thought about yet. It could include things like: health insurance, car payments, business travel, gasoline, auto repairs, meals, computer equipment purchases, software licenses and subscriptions, print or online media subscriptions, internet service, television service, cellular service, phone service, office expenses like rent, remodeling, toilet paper, printer, electricity, heat/cool, etc. This list is going to be custom to you. Start making your list buy jotting down everything that the business would not pay for if you were not the owner.

You might want to rearrange your books to reflect this number or you might want to simply prepare a report that gathers the numbers from within your books and present that document along with the profit/loss statement to the prospective buyer. Doing so will present your business in a truer light to the prospective buyer.


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