How to Choose the Right Financial Professionals When the Time Comes to Sell Your Company

by Oct 29, 2021

The following is adapted from The Exit-Strategy Playbook. 

Over the course of building your business, you have undoubtedly sought professional help from accountants and tax advisors. You may even have started out using QuickBooks and TurboTax. But I’m sure as your business grew, there came a time when you started needing outside advice. 

When you are a business owner, you can categorize the type of help you need along two lines: personal and business. On the personal side, the help includes filing your personal income tax in one or more states and your federal taxes. On the business side, it includes making sure you file the appropriate types of returns to local, state, and federal agencies for the business’ sales, payroll, and income taxes. 

Just as you need more assistance as your business grows, you’ll also need additional assistance when the time comes to consider selling. You need to understand your personal tax situation and develop your sell-side Q of E report. You’ll also need help with accounting and financial statements. Your tax advisors and accountant are the experts who will help with all this, so it’s important that the right ones are at your side as you move through the sales process. 

Why You Need a Personal Tax Advisor 

Before we dive into how to select the right advisors to help with your sale, I want to take a moment to talk about why you need these professionals. Let’s start with the personal tax advisor.  

Tax advice is different from accounting advice. As an owner selling your business, you’re about to receive a large windfall. You need to prepare for this large payday, and that requires very specific tax planning to receive the maximum amount after the sale. 

For most business owners, big paydays don’t happen every day, so maximizing what you receive needs to be a strong consideration in planning an exit and domiciling a business. Remember that maximum value isn’t just about getting the highest price; it’s also about being tax efficient and retaining the maximum amount of that money. 

Why You Need a Business Tax Advisor 

When an entrepreneur sells a company, there are typically two types of purchase agreements that can take place: asset deals and stock deals. If a company exists and the stock of the company is sold, that will generally result in more favorable tax treatment for the seller of the business.  

However, the vast majority of buyers don’t want to do stock deals; rather, they want to do asset deals. Asset deals generally—but not always—result in a tax differential. Thus, as a seller, you need advice regarding the structure of the company and the preferred method of sale, and then you need to do some analysis around the differential.  

If it is a $200,000 benefit to you to do a stock deal, you can always increase your purchase price by $200,000 if the buyer wants an asset sale. Anyone who owns a business today already owns the trailing liabilities that might exist. It’s a risk of being in business. When selling, it’s nice to jettison those potential liabilities during the sale, but not all buyers are willing to assume them. If all buyers feel this way, it could be the difference between getting a deal done and not. 

Why You Need an Accountant 

When you head into a sales transaction, there is a period of time between when the offer is made and the close of the deal. This is known as diligence. I often tell people that diligence is like a proctology exam that never ends. It’s not pleasant, and it can last for months. The level of data requests and types of questions you’ll receive are intrusive. 

Entrepreneurs in a sales process that lasts months need support and people they can hand tasks off to. Having a topflight accountant on retainer to help you navigate both the preparation and the actual sale process will make the whole process much easier. 

During this diligence period, one of the buyer’s key focuses is to understand the true financial position of the company being purchased. If you’ve been running on QuickBooks or don’t have a sophisticated finance team, you may be distributing financial statements that have never been audited or reviewed by outside advisors. The accuracy of those statements and the profit calculation methodologies may be suspect.  

The buyer will review your methodologies for reporting and spend a lot of time and money to understand the quality of earnings. Often, an entrepreneur-led business will include a variety of personal expenses. A competent accountant will make sure everything is shipshape, so neither you nor the buyer will have any unpleasant surprises. 

Selecting Your Firms 

You can find tax and accounting help from professionals and firms that come in all shapes and sizes. You’ll find small boutique firms where both sides are handled by one professional and their support staff, as well as regional and national firms where personal and company matters are handled by different partners and teams within the firm. 

So where do you start? Well, the size of the company being sold is often a good determining factor of what size financial firm is the best fit.  

For example, if your company’s revenue ranges from $1 million to $9 million, consider a small local or regional firm. If you’re doing $10 to $50 million in revenue, look for a small regional firm or a multiregional firm. $50 to $250 million? Go for a multiregional or Tier 2 national firm. And if you’re over $250 million, look for a Tier 2 national firm or a Big 4 firm. 

When it comes to locating a firm, the top resource I recommend is Accounting Today publishes an annual report that is incredibly useful. Simply do an internet search for “Accounting Today Top 100.” It’s a wonderful free resource that you can use to figure out who is who in your part of the country. 

Solid Professional Advice is Critical 

When you’re selling your business, you need both a competent tax advisor and an accountant. They may (rarely) be the same person, although it’s far more likely that they will not. They will probably be from the same firm, although that’s not always the case. 

Either way, they should not be picked because they are your friends or golfing buddies who gave you advice in the past. Instead, figure out what size firm is appropriate to represent you. Then, leverage online resources like Accounting Today’s Top 100 to locate the firms in your area. 

Bottom line? Do your homework! Solid professional advice is critical to achieve the best outcome in a sale transaction. 

For more advice on selecting the right professional advisory team to support you during the sales process, you can find The Exit-Strategy Playbook on Amazon. 

President and CEO, bestselling author, trusted management consultant and acclaimed guest speaker, Adam Coffey is known for building high-performance cultures and driving transformative growth. Most recently, Coffey led CoolSys, a commercial refrigeration and HVAC service company. During his four-year tenure, CoolSys increased revenue by 239 percent and EBITDA by 376 percent while growing to more than 3,000 employees. In April 2019, Coffey led the company through a private equity sale from the Audax Group (Boston) to Ares Management (NYSE: ARES). A licensed general contractor, pilot, former GE executive, alumnus of the UCLA Anderson Executive Program, veteran of the U.S. Army, husband, and father of three, Coffey lives in Westlake, Texas.