Fall 2007 issue of Horizons

knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

gross margins. Get all of your vendor supply agreements in order, documenting vendor payment terms, the length and status of current vendor relationships, and the availability of alternative supply sources. 4. Provide all of the line item components of operating expenses and other income and expense. For each line item, include compensation, employee benefits, rent, leases, marketing, professional fees and all other expenses of your business. You must have current (not expired) copies of employment agreements, operating and capital leases, benefit plan documentation and any other legal binding contracts. Historical Balance Sheets – Make sure you document everything regarding cash, accounts receivable, inventory, other current and long-term assets, fixed assets, accounts payable, accrued expenses, debt and equity. 1. Document your cash receipt and disbursement policies and procedures, including the use of lockboxes, authorization controls, segregation of duties and credit facilities. Confirm that the appropriate bank reconciliations have been performed for each month of the year. 2. Document credit, billing, revenue recognition, and collection policies and procedures. Be able to provide an accounts receivable aging at any time. For any accounts greater than 60 days old, you must be able to guarantee their collection or provide an adequate allowance for the balance. In addition, be able to support the adequacy of the allowance for doubtful accounts and roll forward the allowance for doubtful accounts balance, including significant write-offs and recoveries. 3. Document your inventory control, procurement, delivery, stocking, physical control and valuation policies and procedures, including the methodology for applying costs to inventory. Detail price times quantity for each inventory item on hand. Document the workings of your perpetual inventory system, including the frequency of physical inventory observations, cycle counts and cut- off procedures. Provide book-to-physical and other inventory adjustments recorded. Also prepare an analysis of excess, slow-moving, and/or obsolete inventories, comparing the quantities on hand by significant product with trailing and projected sales. Identify all significant inventory purchase or sale commitments, pledged or consigned inventories, and customer inventories on all sites.

Accountant Next, it is critical to have an accountant assist you in properly appraising the value of your company, getting your financial records in order, assessing tax strategies and providing personal financial planning once the deal is closed. A good company will sell fast for the right price. In addition to offering a viable product or service, a good company has accurate and reliable accounting records, consistent financial reporting, and an effective system of internal controls. You must have audited financial statements for the past three years to give the potential buyer the confidence that you are reporting your accounting records in accordance with Generally Accepted Accounting Principles. If your company has never obtained these statements, you can have an accounting firm perform an audit for prior years. You should have detailed information regarding your historical operating results, historical balance sheets, working capital and seasonality, taxes, information systems and projections. Be sure you gather this information for at least the past three years. Historical Operating Results – In accumulating your historical operating results, you should provide detailed informationabout sales, cost of sales, operatingexpenses and other income and expense. 1. Provide details of revenue recognition policies, marketing, sales, pricing and distribution strategies, sales terms and billing practices, freight practices, credit policies, and product liability terms and claim history. Provide a reconciliation of gross to net sales, disaggregating sales discounts, returns and allowances, volume discounts and other deductions. Break out customers by product, including any customer agreements. Also detail net sales, cost of sales and gross profit by product line and geographic territory. In addition, provide sales and gross profit fluctuations attributable to volume, sales price and mix considerations. 2. Provide the line item components that make up cost of sales. Ensure there are definite and consistent policies and procedures in place for determining cost of sales (i.e., standard cost, actual costs, hybrid method, etc.). 3. Provide raw material purchases by type for your top vendors, documenting the impact of changing prices on

12 u winter 2007 issue