Should I switch accounting systems before selling my business?

The Scenario

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.

Q1: Should I switch accounting systems?

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.

QuickBooks is the most popular accounting system for small businesses; however, that is slowly changing with the introduction of more modern, streamlined cloud-based systems such as Xero and Wave. 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“Switch to a new accounting system only if you’re using an outdated system.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One major exception is if you are using an outdated system or software, or if you are compiling your books manually.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. Most buyers of businesses continue to use the same software and system you are using. In most cases, this is QuickBooks desktop version, followed by QuickBooks online version.

We strongly prefer cloud-based accounting software as it can be easily accessed by multiple persons at the same time. This facilitates the due diligence process as you can simply 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.

Q2: Should I consider switching accountants?

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

You can retain a third-party CPA to perform this review ― this is not technically a ‘review’ as accountants call it. You can also have us review your financial statements. To do this type of assessment, we normally require your profit & loss statements (P&Ls) and balance sheets. We then review your financial information to assess the quality of the information.

The No. 1 deal killer 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. 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.

When we perform this assessment, we examine your P&Ls, balance sheets and other financial documents, and conduct a presale financial assessment of your business. This 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 finds issues with your financial records will most certainly conduct due diligence very thoroughly, 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. Plainly, 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 maximizes the selling price of your business.”

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

Jacob Orosz, Morgan & Westfield