What does it mean when we say that we’ll “Recast” your financial statements as one of our first steps to sell your winery?
In the years you’ve owned your winery, you’ve been wise to use accepted and legal business practices. You’ve put your children on the payroll and funneled your profits back into capital improvements. You’ve given perks to yourself and your family.
This has given you more working capital and reduced your tax burden. It’s all perfectly legal and accepted.
However, prospective buyers will look at your financial statements from a completely different perspective. They’ll “subtract” these items from your profit margin. They want to see the cash flow potential of your winery under their management.
We want to clean up your financials so that it’s easily understandable by the buyer and shows the true profit to them when they are proud owners.
We add transparency to the process and make it easier for the buyer to see the financial value of your business by performing a financial recast. We want to make the potential profit of your business “clear” to a buyer. That is, the profit potential is completely transparent to the buyer.
Recasting Your Existing Financials
We achieve this by “recasting” your existing financials into something that’s more easily understood by the buyer. Essentially, we (with your CPA) adjust your past income statements (the last three years) to mirror what might have happened should you:
- Removed your perks, adjust owners’ salaries to market, Adjusted rent to market if facility is owned
- Eliminate various expenses and income that will not happen following the sale, including discontinued products or the gain from the sale of business assets…
- Remove one time non-recurring extraordinary expenses; i.e., big consulting project expenses…
- Remove personal assets, and any non-operating expenses or income…
- Eliminate interest payments on business loans…
- Strike assets that won’t go with the company…
- Review Inventory write offs, the possible requirement for them now and then any other conditions…
- Write off any accounts receivable that are uncollectable…
- Write off any loans the company made to you…
- Remove other debt that wont be assumed by the buyer.
You’re not trying to mislead buyers. The goal of recasting financials is to provide the buyer a clear understanding of the money generating potential of the business.
Be sure to carefully document any changes for your original documents on the face of the recast financial statements. You need to fully disclose everything to the buyer. This can reduce the Due Diligence process, and ensure a level of trust and faith between you and the buyer.
We’ll make these recasting adjustments to both your income statement and balance sheet. A primary reason we do this is that the fair market value of certain assets could be more or less than the book value, so we want to make these adjustments on your balance sheet.
The recast balance sheet may also identify assets and liabilities that are to become excluded from the sales transaction, such as cash you’ll keep for yourself.
Financial Recast Demo Statement
It is common in financial recasting to add back certain discretionary, extraordinary and non-cash expenses in order to indicate the approximate historical cash flow of the business. SDC is usually termed as Earnings Before Interest, Taxes, and Depreciation (EBITDA) and before owner’s compensation. ANI is often known as Earnings Before Interest, Taxes, and Depreciation (EBITDA) and before owner’s compensation. ANI is often referred to as Earnings Before Interest, Taxes, and Depreciation (EBITDA) and after reasonable industry market rate compensation to replace the owner with an employed manager.
Please contact us about California Wineries for sale or for selling your winery.
