What are some of the keys to a successful merger or acquisition? Recently, Michael Gossie, Editor in Chief, AZ Big Media, interviewed three of our partners to gain insight into the M&A process and things business owners should think about before buying or selling a business.
A record year of M&A activity in 2021 left many business owners thinking that the time might be right to sell their business.
Selling or acquiring a business is a new experience for most business owners. One of the keys to a successful sale is understanding the importance of using a professional who is well-versed in current tax regulations and laws. That’s where a CPA can help guide you through the process.
“A CPA helps navigate the sale or acquisition, including evaluating potential offers, reviewing letters of intent (LOI), creating a due diligence checklist, performing quality of earnings, and providing guidance on the post-tax basis and post-closing tax return,” says Randy Brammer, managing partner at Wallace, Plese + Dreher, an Arizona accounting firm focused on client service. “We will be able to determine the basics of when — or if — a deal makes practical and financial sense.”
READ ALSO: Business leaders to watch in 2021: Randy G. Brammer, Wallace, Plese + Dreher
Here are seven things a CPA will do for you:
1. Evaluate prior tax returns and financial statements for tax attributes, debt, equity and other relevant information.
2. Consider equity in relation to historical working capital earnings from a valuation standpoint.
3. Assess depreciable basis of assets for tax purposes.
4. Analyze existing debt structures.
5. Determine the most tax advantageous structure.
6. Recommend alternatives for long-term tax and business structure.
7. Perform quality of earnings to understand historical operations and areas of concern for moving business forward.
Leslie Prichard, audit partner, with Wallace, Plese + Dreher, stresses the importance of having a quality of earnings done. “It prepares owners to answer difficult questions, addresses concerns of potential buyers, and begins the process of preparing documentation necessary during the sales process. It shows potential buyers that you are serious about the sales process,” she says.
Another part of the process is tax planning that business owners looking to buy or sell need to take into account.
“An important piece that is often underestimated when selling a business is the income taxes,” Chris Coots, tax partner, with Wallace, Plese + Dreher, says. “If business owners don’t totally understand the LOI or changes to the structure during the transaction, they may underestimate the income taxes. Unfortunately, if we’re not involved during the process, that’s often what happens. They close the deal this year, start working on tax returns, and then discover they owe a lot more tax than they thought they would owe.”
Most professionals agree that the biggest mistake people make when it comes to selling their business is they start too late. Owners often have a number in their head when it comes to the price they want to get for their business, but they discount the impact of taxes and other items. They need to consider the net after-cash amount in their pocket when the deal is done. A CPA can help them navigate these waters and end up with the results and the cash they desire.
“We know the M&A business. We have the understanding of the big picture that guides business owners through the process effectively, getting the results they deserve,” Brammer says.
To learn more about how Wallace, Plese + Dreher can help you sell or buy a business, click here.