The purpose of external advisors is to make you – the owner – and your entire management team look as credible as possible by anticipating issues and preparing disclosure in a professional manner. And who doesn’t want that?

Your Accountant’s Role

Your attorney will play a key role in negotiating the purchase agreement. But it’s your accountant who will take the lead in financial due diligence and examining the financial and tax implications of the purchase agreement and negotiating any reps and warranties, including representations that relate to:

  • Capitalization
  • Financial statements (accuracy of, in accordance with GAAP, and so forth)
  • Taxes and tax returns
  • Books and records
  • Accounts receivable
  • Inventory
  • Employee benefits
  • Employee compensation

Review Your Financials

I recommend you ask your accountant to review your financial statements, tax returns, and bank statements, and correct any inaccuracies before you begin the sales process. They should also reconcile your financial statements, tax returns, and bank statements to ensure they match.

Tax Advice

An accountant also can advise you on the tax implications of the sale. If so, I recommend involving your accountant as soon as possible in the process because you will have much more flexibility in tax planning and maximizing after-tax transaction proceeds the earlier you involve them in your plans. 

Your accountant can also estimate the federal and state tax consequences of selling your business under varying scenarios, such as whether you’re selling your assets only or your entire entity, whether you’ll be paid in one lump sum versus installments over time, and to what extent your estate plan should be considered. They can also prepare tax returns associated with the sale, such as the income tax return of a corporation that sells its assets or the tax return of an individual who sells their shares or corporate stock. 

Allocation of Purchase Price

Your accountant can also assist in allocating the sale price among the various assets being sold by completing IRS Form 8594, the “Asset Acquisition Statement,” which is required when selling your business. Your accountant can help review the financial aspects of the deal, including structuring earnouts, seller financing, or other contingent payments.

Working Capital Calculations

Most middle-market transactions include working capital. As a result, working capital and balance worksheets must be prepared for the closing and then re-examined after the closing to calculate any differences in working capital between the periods. Your accountant can assist with these calculations. If you’re selling a small business, these calculations usually aren’t necessary because working capital isn’t customarily included in the purchase of a small business.

Ask your accountant to review your financial statements, tax returns, and bank statements, and correct any inaccuracies before you begin the sales process.

Tips for Hiring an Accountant

Find out if your accountant has experience in the purchase and sale of businesses. Ideally, your accountant should have experience both on the buy-side and the sell-side in a range of different-sized transactions. But a word of caution – not all CPAs are sufficiently qualified to provide all of the small-business sale services suggested above. That’s because many CPAs specialize in preparing individual tax returns but don’t routinely assist in business sales.