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Should I switch accounting systems before I sell my business?

Question


I am in the process of selling my business. Should I consider switching accounting systems? I currently use QuickBooks and am considering switching to another system.

 

Answer


In general, you should avoid switching accounting systems if you are in the process of selling a business. Although there are some exceptions (which we will discuss later), the majority of the time we recommend staying with your current accounting system if you’re planning to sell in the near future.

QuickBooks is currently the most popular accounting system for small businesses, but that is slowly changing with the introduction of more modern, streamlined cloud-based systems. Switching to a new accounting system is a major project and should only be undertaken with proper professional assistance. While software companies claim they can switch you over painlessly, the truth is that without an accountant familiar with the process, the conversion can be painful and take months to perform properly. Switching to a new system may also complicate the due diligence process because your data is now located in two systems.

Switch to a new accounting system only if you’re using an outdated system. Buyers prefer businesses with up-to-date infrastructure.

One major exception is if you are using an outdated system or software, or if you are compiling your books manually. If so, it pays to update your system using newer software that is on the market.

We strongly prefer cloud-based accounting software as it can be easily accessed by multiple people simultaneously. This facilitates the due diligence process since you can provide the buyer with a unique username and password to access your data on a “read-only” basis. Switching to a cloud-based system may speed up the due diligence process and possibly even make your business easier to sell. After all, buyers prefer businesses with up-to-date infrastructure and systems in place, and your accounting system is one of the most important functions in your business.

Should I Switch Accountants?

Having your financial statements reviewed by a third party can be useful if you doubt the accuracy of your accounting work. Unfortunately, this is a common scenario that we encounter. More than half of the business owners who approach us have at least some errors in their accounting work that need to be cleaned up prior to a sale. About 10%-20% require a major overhaul before placing their business on the market.

We recommend retaining a third-party CPA to perform this review.

One of the most common deal killers when selling a business is inaccurate or incomplete financial records. With inaccurate financial records, you run the risk of losing a buyer. Why? Once the buyer discovers the defects during due diligence, the sale must be delayed to address the problems. Sometimes, these problems take months to resolve. At this point, the buyer may have decided to move on or may have decided your business is no longer a sound investment.

After spending many months finding a buyer, losing them over something that could have been corrected from the outset is a huge disappointment and a waste of valuable time, money, and resources.

This review helps spot potential issues that a buyer may find with your financial records and allows you to address them before you receive an offer.

Having your financial records in order before selling your business also potentially speeds up the due diligence process, resulting in a higher chance of closing a deal. This is because a buyer who discovers issues with your financial records will most certainly conduct very thorough due diligence, looking for problems in other areas as well.

Finally, accurate financial records may maximize the sale price of your business by attracting buyers who are confident in your business. The more organized your business’s financial records appear, the more likely you will sell your business quickly and for top dollar.

Clean financial records speed up due diligence and maximize the selling price of your business.

In summary, think twice before you switch accounting systems. It pays to consult with an expert before switching systems. Switching accountants, on the other hand, is often easier than switching systems. Before you consider switching accountants, it pays to have an independent third party review the quality of your financial information.

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