Financial reports that matter

The decision to sell your fitness and wellness business doesn’t happen overnight, and the journey to selling actually begins years before you decide on the right timing. While it is not the most exciting step in the process, being able to provide clear and concise financial reports is a necessary step. Your business financial reports are a trusty map for your potential buyers, guiding them through the health of your business. In this blog, we'll discuss which reports take the spotlight in the sale of a business like yours.

Income Statements

Your business’s income statements (also called profit and loss statements, or P&Ls) are the primary reports that a buyer (and also a banker) will want to see. Income statements provide a summary of revenues and expenses over a specific period and are crucial when providing insight into your business's profitability.

When you list your business for sale, your broker will ask for 3 to 5 years of income statements, so that a buyer can see the trend in growth during that period. This is particularly useful when there has been a significant event that impacted growth (COVID for example), and the more years that you can show the more likely it is that a buyer will be able to see that you survived and then grew on the other side of the event. Don’t be surprised when your broker or buyer asks for income statements from 2018…it seems irrelevant today, but it helps to tell the story of your business over time.

While your business is for sale, you will be asked to provide year to date income statements on a regular basis, so it is important that you have an organized process to get your financial statements prepared in a timely manner, ideally within 2 to 2 weeks at the end of each quarter (or month if you prefer). If preparing financial statements is not on your list of things you enjoy doing, this is exactly the type of service that you should pay someone else to do for you…it is totally worth it. A buyer will get spooked quickly if it takes took long to get a current picture of operations.

Balance Sheets

Balance sheets offer a snapshot of your business's financial position at a specific point in time. A well-prepared balance sheet is essential for demonstrating your business's financial health, i.e. what you own and what you owe. While in most boutique fitness sale transactions the buyer is not buying your assets besides equipment and supplies in the space, being able to see what you own and owe gives the buyer a clearer picture of your business.

During a sale, you will be asked to provide the most recent balance sheet for your business, generally as of the end of the previous year is fine.

Studio-Specific Reports

Alongside your financial statements, it is important that you can provide support for your studio results. Numbers on a income statement are great, but a buyer is going to want to be able to trace those results back to the source. This means that you will want to run and save reports that support your revenue and expenses. These reports would include reports on auto-pay revenue, sales, payroll, rent receipts, membership retention, etc. Be sure you can quickly provide this support when asked, and that if what you have reported as sales on your income statement, for example, is different than sales in your software, make sure that you can reconcile those differences before sharing. Waiting to clear up differences until due diligence begins can create uncertainty and mistrust, and that is never a good thing.

Regularly Update Your Financial Statements

I have mentioned before that for many fitness and wellness owners, the process of preparing financial statements is boring at best, and confusing, at worst. I will say again that this is one task that must be done correctly and well, so hire someone to do this for you if you don’t want to or can’t do it yourself.

Financial statements are not a once-a-year task. Regularly update and review your reports, preferably monthly. This not only helps in monitoring your business's financial health but also makes the year-end process more manageable and less prone to errors. While your business is listed for sale and during the sales process, you will need to provide updated financial information on a regular basis, so you might as well create the habit now, if you haven’t already.

Remember that the value of your fitness and wellness business is not only measured in numbers but also in the story your financial statements tell. From the income statement’s narrative of revenue and expenses to the balance sheet's snapshot of assets and liabilities, and even the supporting reports, each statement contributes to the story of your business's success. So, when it's time to pass the baton to a new owner, it is important that you understand that your financial reports are not just documents but key pieces of very relevant information, that can instill confidence and excitement in those looking to carry on the legacy of the business that you've built. Give them the attention that they deserve to ensure a successful sale!