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?
Table of Contents
- Your Accountant’s Role
- Review Your Financials
- Tax Advice
- Allocation of Purchase Price
- Working Capital Calculations
- Tips for Hiring an Accountant
- A CPA is Ideal
Your Accountant’s Role
Review Your Financials
We recommend you ask your accountant or CPA to review your financial statements, tax returns, and bank statements, and correct any inaccuracies before providing the records to a buyer. They should also reconcile your financial statements, tax returns, and bank statements to ensure they match. If they have significant M&A experience, they can also assist you in preparing for financial due diligence.
An accountant also can advise you on the tax implications of the sale. We 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 revenues if you consult with your tax advisor during the business exit-planning process.
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 whether your estate plan should also be a consideration. 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.” 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 measure any differences in working capital between the periods. Your accountant can assist with these calculations. If you are selling a small business, these calculations usually aren’t necessary because working capital isn’t customarily included in the purchase of a small business.
Tips for Hiring an Accountant
Find out if the CPA 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.
A CPA is Ideal
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.