Business Sale Transactions Start & Finish with CPA’s

Mar 12, 2019

The Major League Baseball season will have its earliest opening day in history, excluding international contests, this year with all thirty teams in the league scheduled to send pitchers to the mound on March 28.  The team that lifts the 115th World Series trophy this autumn is likely to have several quality starting pitchers and a bullpen featuring closing pitchers who can end games with outs.

In the sale of privately held companies and family owned businesses, the accountant is the professional adviser that takes the mound first to lay the foundation for future success by a mergers & acquisitions intermediary and their mutual client.  Transparent, detailed internal financial documentation and tax returns filed with the Internal Revenue Service (IRS) enhance the value of businesses and the likelihood of business buyers securing acquisition capital from banks & investors.   It is common for business buyers to review at minimum three to five historical years of financial documentation prior to an acquisition, so consistency in professional guidance and accounting procedures is “best practice” prior to going to market.  It is strongly recommended that if a 2019 sale of a business is desired, that IRS tax returns be filed on a timely basis without extension. This year Partnership, Multiple Member LLC, and S Corporation tax returns are due March 15, 2019.  C Corporation, Single Member LLC, and Sole Proprietorship tax returns are due April 15, 2019.

Quality financial records in place, the next step in the sell side business sale process is to value the business.  This is frequently a collaborative process between the business broker, accountant, potentially a CFO, and the business owner.  Each of these parties have important roles to play in valuing a privately held company or family business.  The CPA and/or CFO contribute historical knowledge and valuation models.  The mergers & acquisitions professional adds field knowledge & experience that facilitates the fine tuning of “static” valuation models that do not incorporate geography, current industry mergers & acquisition trends, buyer demand or scarcity, and the present lending environment as components.  Ownership is the decision maker possessing the ability to decide when and at what value to go to market.   Sale values selected by ownership that do not incorporate the knowledge & experience of the business broker can result in the loss of that professional from the seller’s team.

IBA is commonly regarded as the most selective business brokerage firm in the Pacific Northwest regarding the projects and clients it will represent.  This high degree of selectivity is based on IBA operating with a paid-on-performance business model where it only gets paid when our clients receive proceeds from a sale and our strong desire to finish the projects we start as a mergers & acquisitions intermediary firm.  Annually, IBA sells 80 – 90% of the projects it undertakes in the timeline outlined when the company is listed for sale, with the balance of deals generally involving businesses in less desirable geographic locations and industries that result in delayed transactions that exceed our initial transaction target date estimate.

Business value established the ball & mound are traditionally given to the M&A intermediary at this stage in the sale process to create a marketplace for the business and identify potential buyers.   The pool of buyers narrowed to one by the business broker and a letter of intent executed the company’s CPA remerges from the bullpen to address due diligence and tax allocation.

An accountant with experience facilitating the due diligence process is a very valuable asset to a transaction team.  Many deals are lost in mergers & acquisitions because a business buyer does not have the ability to satisfactorily verify information relied upon during preliminary negotiations.  It is the business broker, accountant, and seller’s job to create an environment of full disclosure and transparency during due diligence to solidify the likelihood of a transaction and mitigate trailing liability after the sale is completed.  It is very rare for an IBA business broker to lose a deal during due diligence due to our experience, knowledge, and professional skill set facilitating this process.

Equally important to the seller is a CPA with knowledge & experience in the specialized accounting area of tax allocation.  More important than the gross dollar amount a business sells at is the dollar amount ownership receives after taxes.   Sophisticated strategies can be employed by knowledgeable parties to mitigate post transaction tax liability.  IBA does not provide accounting advice, but offers its clients knowledge gained related to mitigating the taxes associated with the sale of a privately held company or family owned business from working with many of the top accountants in the Pacific Northwest region over the past 44 years while facilitating over 4000 transactions for our clients.

A winning outcome in a baseball game often requires contributions by multiple pitchers over nine innings.  A successful outcome in a business sale traditionally requires collaborative contributions on behalf of the seller from their accountant, attorney, and business broker.   If you are an entrepreneur considering the sale of your privately held company or family owned business in the Pacific Northwest in 2019, IBA would welcome the opportunity to audition for a spot on your team.  We are confident you will find the knowledge, experience, and professional skill set of our team of business brokers equal to or greater than the best available in the United States.  If you are a business owner in need of a recommendation of a CPA who has a practice that specializes in small businesses, IBA has a referral database of accountants and would welcome the opportunity to make an introduction.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.