Can you trust your CPA for deal advice?

Plenty of CPA’s handle business transactions, and do a good job.  Chances are good, however, that yours is not one of them.  Most small businesses rely on a CPA for tax preparation and general tax advice, and most CPA’s that cater to this type of client rarely handle other types of work.  Over the course of their careers they are “involved” in multiple transactions, but always in a very limited sense that is aligned with their expertise – tax guidance.

Many small business owners ask their CPA for advice about when and how to sell their business.  Why not go to someone who you have relied on for years and who knows the financial piece of your business intimately?  This may be harmless and they may give you useful feedback, but should always think objectively about their input unless their practice is based more on transaction advisory than tax prep.  Let’s consider two common examples of how they can misguide you:

Your CPA tells you that you will make more money owning your business than selling it

If your accountant gives you this advice, ask him or her some questions.  How many business valuations does he produce each year?  Does she have a pulse on acquisition activity in your industry?  How many businesses like yours has the firm sold?

Many accountants issue this advice, but it’s just a blanket statement that ignores the dynamics of your industry and your personal reasons for considering a sale.  If you are ready to retire, you’re better off with the lump sum from the sale than continuing to work.  If your industry is consolidating, you will actually lose money by waiting to sell because valuations will go down over time.  Furthermore, who says you have to sell AND retire?

If your CPA gives you this advice but cannot adequately answer the questions above, perhaps he just doesn’t want you to sell because that would mean losing you as a client.

Your CPA offers to broker the transaction for you

Would you let your dentist perform open heart surgery on you?  Your dentist works in healthcare, but that doesn’t make him a surgeon; likewise, your CPA works with financial statements but that does not qualify him to lead a deal.  Preparing your financial statements and tax returns does not qualify someone to manage a transaction.  In fact, understanding the financial piece of the puzzle is one of the easier aspects of brokering a deal.

How your CPA fits into the deal team

CPA’s can play a valuable role in selling a company.  They provide access to historic financials, answer questions about any discrepancies between internal financial statements and tax returns, and advise you on how to minimize the tax you pay on the proceeds from the sale.  We always recommend our clients consult their accountant on these matters; the accountant is just not the lead.

Let an experienced business broker quarterback your transaction.  They understand all nuances of the deal, from financials to marketing your business to structuring the deal in a way that ensures you receive the best terms.  Many owners who consider using their accountant to broker the deal do so in order to save money.  This may be the biggest myth of all.  First, the accountant is probably billing you hourly, so you pay them regardless of the outcome whereas a broker only gets paid if the deal closes.  Second, and more importantly, selling your company will most likely be the largest and most important transaction of your life.  If you cut corners you are likely to be stuck with either a below-market price or terrible deal terms, if not both, and this costs a lot more than a broker’s commission.

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