Buying or Selling a Business? What is the CPA’s Role?
Whether you are buying or selling a business, your accountant can make or break the deal.
If you choose to engage advisors, such as a CPA, to assist you in the sale or purchase of a business, it is important that they be deal friendly and transaction experienced. They must have a clear understanding of your objectives and seriousness in getting the transaction completed. In many instances, the sale of a business fails to close because of a CPA’s actions or lack thereof.
For instance, the buyer’s accountant makes too many demands of the seller due to the lack of understanding of the due diligence process or the documentation that should typically and reasonably be provided by the seller. Certainly, you want your accountant to look out for your interests, but not to the point where the demands are so strenuous that the other party walks away from the deal.
The failure of the seller’s accountant to provide financial records and information in a timely manner to the buyer is another way to kill a deal. In general, the reason for delayed responsiveness in delivering requested documents is that the accountant views the sale of the business as losing a client. However, if the accountant is timely, helpful, and knowledgeable in regards to the financial aspects of the business, the new owner will look at the accountant in a positive light and is more likely to be asked to continue servicing the business when the new owner takes over.
A seller’s accountant’s lack of understanding of the tax implications of a business sale is also one of the reasons that a business sale can die. If tax issues are not understood, the deal will not be structured to minimize the tax liabilities of the seller. You don’t want to be in the middle of a transaction with a solid buyer and discover that the tax implications of the sale are going to net you much less than you had figured. By structuring the transaction beforehand and properly addressing tax matters, the seller can maximize much-deserved profits.
How your business is legally formed can be important in determining your tax status when selling your business. Is your business a corporation, partnership or proprietorship? If you are incorporated, is the business a C corporation or a sub-chapter S corporation? In addition, there are some tax rules that impact certain businesses on seller financing. The point to be made here is before you consider price or even selling your business, it is important that you discuss the tax implications of a sale of your business with a tax advisor that is experienced in business transfer transactions. A business broker will be able to recognize potential problems and can refer you to tax professionals if you don’t already have one that is experienced in tax issues related to business transfer transactions.
The buyer, seller, and their advisors involved in the transaction must have a shared understanding of the price and terms of the deal…….who is getting what and for how much……or the sale may be doomed before it starts. To help prevent wrecked deals, good communication between all of the parties involved is a priority. Unless they are told, outside advisors may not realize how much the buyer and the seller want to consummate the sale. The accountant needs to know from the client that this is an earnestly desired transaction and that, unless something completely unanticipated is discovered, his or her job is to provide, review, and verify the financial records of the business in order to get the deal done.
If there is no one monitoring and leading the progress of the transaction, the ball can be dropped somewhere along the way. The use of a professional business broker can alleviate communication problems and keep the ball rolling. The broker’s role at this point in a business transfer transaction is to act as the intermediary. The business broker–having been through the process many times, much more often than any of the attorneys or other advisors involved–knows the pitfalls. They keep the deal on track and act as the captain that keeps the team working together towards the common goal…….the successful consummation of the sale. As long as all advisors involved are operating on the same wave length as their respective clients — the buyer and the seller — the odds are good that the deal will happen.