P&L qualities and mistakes that could make or break a sale

Imagine you spent years building the world’s best pest management company. It’s so popular that someone wants to buy it from you for a lot of money. Before they write the check, though, they’ll ask to see your “report card.”

For a business, one of the most important report cards is called a profit and loss statement (P&L). A P&L is a simple summary that shows two things: all the money a company made (its revenue) and all the money it spent (its expenses). When a potential buyer looks at your company’s P&L, they instantly get a feeling about it. That feeling is either “Wow, this is a great business!” or “Uh oh, something looks fishy here.”

The best qualities

What type of report card would instill confidence in a buyer? One that builds trust. It’s clean, organized, easy to understand, and it will get an A+. An A+ report card looks:

➜ Organized. All the costs are put into neat groups. The cost of labor, chemicals and fleet is separate from the cost of making signs to advertise. This shows the buyer you know exactly where your money is going. It shows you understand industry key performance indicators (KPIs) and expected margins.

➜ Consistent. The amount of profit you make doesn’t jump up and down like a yo-yo every month. A steady, predictable business feels safe to a buyer.

➜ Transparent. It doesn’t try to hide anything. There are no big, mysterious expenses labeled “miscellaneous.” Every dollar has a purpose, and it’s easy to see what that purpose is.

The worst qualities

What type of report card would make a buyer worried? Some P&Ls are like a report card with Fs and a note from the teacher that says, “See me after class.” A failing report card that raises red flags and has warning signs that something is wrong is:

➜ Messy. Imagine using your pest management company’s money to buy video games and golf clubs
for yourself and calling it a “business expense.” A buyer will see this and think you’re not serious or disciplined.

➜ Confusing. Costs are thrown together in jumbled piles. It’s impossible to tell whether the business is making money or losing money. Also, don’t try to tell a buyer the company would make money if not for marketing costs. Savvy buyers know that without marketing, sustainability and growth slow significantly and devalue the company.

➜ Suspicious. Sometimes, owners will suddenly stop spending money on important things like advertising and chemicals right before they sell. This makes the company look more profitable than it really is. It’s like shoving all the junk in your room under your bed before your parents come in. A smart buyer will lift the covers and see the mess.

How to fix it

So, how do you make sure your P&L gets an A+? To fix your report card before the test, you have to study and prepare. Take these three steps:

1. Clean it up. Review every expense and ensure it’s a legitimate business cost. Take out the cost of the video games and the personal golf clubs.
2. Be ready to explain everything. If you had a really expensive month because a storm destroyed your office and you had to rebuild it, for example, make a note of that. Buyers understand that one-time accidents happen. They just want to know the story behind the numbers.
3. Organize it professionally. Your P&L should be so clear that a stranger can understand exactly how your business works in just a few minutes.

A clean P&L shows you’re a pro. It builds trust, reduces a buyer’s worries, and is the best way to prove your company is as valuable as you know it is.

Gordon owns PCO Bookkeepers & M&A Specialists, an accounting and exit planning firm that caters to pest management professionals throughout the United States. You may reach him
at dan@pcobookkeepers.com.