Thinking of selling business and have some questions.

Discussion in 'Growing and Managing a Business' started by Italybound, Jan 18, 2013.

  1. Italybound

    Italybound
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    Hello,

    We are planning selling our business and have some questions about creating a Profit and loss statement.

    We sell all of our items online and if purchased we would be bought by someone doing the same. Do we include our lease and utilities in our p/l. The business could easily be ran with out a location or the purchaser would also have a location.

    Does website development count toward our Cost of Goods or is this more of an equity item? Our website was upgraded at a large cost this year however it really did not improve the overall sales.

    Thank you

    Jeff
     
  2. Business Attorney

    Business Attorney
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    Your profit and loss statement should include ALL of your costs but they should be clearly divided into appropriate categories. A Buyer will typically recast the statements for his own purpose and remove items that are not needed for the buyer to continue to operate the business. If a buyer can operate your business without increasing its rent and utilities, it can easily exclude those amounts. You can help the buyer along if you feel like you need to by providing both an actual P&L statement and one that has been adjusted to remove costs that you don't believe are relevant to the buyer. That type of statement is called a pro forma income statement.

    Most website development should be treated as general and administrative expense, not as cost of goods sold. Another alternative would be to capitalize it and amortize the cost over the useful life of the development, but since it is generally an ongoing expense to keep the website current, perhaps larger in some years than in others, I would argue that it should be charged off as an expense in the year it is incurred. From a P&L standpoint, I would clearly label it and provide a potential buyer with historic figures and perhaps even adjust the pro forma P&L to a historic average so that the buyer understands that the current amount was not typical.
     
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