Recently‚ I had a client in my office asking me whether or not he needs to speak to his accountant about the business terms before he puts his business on the market. I proceeded to tell him that accountants are such an important part of the business sale process‚ that it was like asking me if he should go skydiving without a parachute. Sure there is a possibility that he could land in a mattress factory‚ but the odds aren’t good. If you can’t tell‚ I think accountants are one of the three major members (along with a business broker/investment banker and business attorney) of your team. Not only do you need to speak to your accountant‚ you may have to hire additional accountants to sell your business with peace of mind. Your accountant will have many functions and responsibilities throughout and after the business sale process‚ including:
- Business sale structure
before placing your business on the market‚ your accountant will be able to tell you the advantages and disadvantages of selling your business either as an asset sale or stock sale. The tax implications between the two methods can be substantial. Although asset sales are more common and preferred by buyers‚ if the tax advantage of a stock sale is drastic‚ it may pay to hold out for a buyer willing to accept a stock sale.
- Setting up structure before sale takes place
In certain situations‚ your accountant may advise you to transfer a portion of your business or the assets of your business to a different person or entity‚ setup a new entity and/or dissolve your current entity before the sale takes place. Each transaction has different components to it‚ and it will depend exclusively on your particular situation. However‚ I have seen situations where hundreds of thousands of dollars were saved in taxes by modifying the business structure before the sale. Once the agreements are signed‚ you may have trouble doing this so speaking to your accountant beforehand is critical.
- Business value
Your accountant will be able to help you determine the true value of your business based upon its past performance. Although some accountants are not business valuation experts (which you may have to hire separately at the advice of your accountant) they will usually be able to give you a good idea of what numbers the buyers will look at. You definitely do not want to list too low and may have trouble selling if you set the price too high.
- Obtaining and recasting financial statements
In all likelihood‚ the buyer of your business will want to see financial statements from your business’ history and an up to date set of financials during the current period. Your accountant will be the one you are working with to obtain these reports. Additionally‚ the financials may have to be “recasted” in order to provide the true value of your business.
- Asset allocation
During the contract negotiation process‚ you will have to determine how you want the purchase price allocated‚ meaning‚ that a certain portion will go towards the goodwill of the company‚ some towards the hard assets‚ some towards the real estate‚ etc. Allocating a portion of the purchase price to a specific category will have certain tax implications that you must consider.
- Final returns/Dissolution
Depending on how your transaction is structured‚ your accountant will look to file a final return for your entity and dissolve the entity completely. In cases where you provide seller financing‚ you still will be receiving income from the business sale and will have to file separate returns for that income.
Failing to seek the advice of an accountant before‚ during and after the process will be certain to cost you in the end. Accountants are critical in order to sell your business with peace of mind. Do bank on the fact that a mattress factory will be waiting for you at the bottom of your free fall.