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Nice article. One nit tho: > When it came time to sell my events business, it turned out our Balance Sheet was in bad shape because we had collected a lot of
by jpdoctor 14y ago
Nice article. One nit tho:
> When it came time to sell my events business, it turned out our Balance Sheet was in bad shape because we had collected a lot of revenue that we couldn’t recognize because it was for a future event. That means it was a liability, not an asset. Ouch.
... When someone buys your company, the transaction is done on a ‘zero balance sheet’ meaning they pay extra for assets or take away cash for liabilities.
This was a timing issue and if I had understood it, I could’ve timed the sale of the business more effectively to maximize the purchase price.
Unrecognized revenue is an asset with an offsetting liability. (And if you're using cash-accounting instead of accrual, it's not even revenue yet.) Honestly, the whole thing sounds more like a negotiating tactic, and that you got taken advantage of for not understanding the balance sheet.
Put another way: If you had competing buyers, no one would really have cared that much about whether the revenue was recognized yet or not.
- ryancarson 14y agoIt was down to the fact that I couldn't accrue future staff costs towards the event. Yes, I would've had much more power if their was multiple interested buyers but it wouldn't have changed this very real accounting problem. Essentially, I hadn't optimized the BS pre-sale (>1 year in advance) as I should've.
- jpdoctor 14y ago> It was down to the fact that I couldn't accrue future staff costs towards the event. You lost me: Unaccrued staff costs are quite different than unrecognized revenue, which is what you originally mentioned. In fact, such costs would be on the liability side, so a sensible buyer would love to see you put them on the balance sheet since it would lower the assets in the company. (Buyers are always trying to accrue costs in advance, sellers are trying to accrue revenue in advance.) I'm obviously not getting what you're saying.
- ganz 14y agoThe only plausible interpretation I see is that the event had costs that were counted as liabilities, but that the revenue from the event was not yet recognized as assets.
- btilly 14y agoYou describe perfectly what I understood him to be saying, then say you don't understand. As you said, a sensible buyer would love to see those costs on the balance sheet since it would lower assets in the company. Which is exactly what happened, and the buyer spent $150K less. However the OP was the seller, and so was significantly less delighted to find at the last minute that $150K less money than expected would be received.
- deleted 14y ago[deleted]