Why Do You Need A Professional Accountant While Selling Your Business

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Why Do You Need A Professional Accountant While Selling Your Business

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Exit strategies are an essential aspect of operating a business. After all, contingencies, like a financial downfall, call for a way to get rid of liabilities while saving as much money as feasible. Selling a business is one of the most popular exit strategies among entrepreneurs. Business owners decide to sell or transfer their business to a third party for various reasons such as retirement, lack of successors, desire to pursue a new opportunity, personal obligations, and financial concerns. Many businessmen also start their business with plans to liquidate their assets at a certain point.

When you decide to sell your business, you have a few objectives in your mind. You expect to find the right buyer, execute the process smoothly, and maximize your profits. But, is it as easy as it looks on paper? From finding the right purchaser to structuring the deal and doing due diligence, the sale process is laden with obstacles and requires careful thought. Selling your business is one of the most significant transactions you will make, and you certainly do not want to go wrong with it. Hence, doing it yourself is rarely the right option. Why? Here is all you need to know about selling your business and why you should have an accountant to help you with the process –

Selling your Business and Considerations

In Canada, you can sell your business in two ways. You can either choose to go with an asset sale or a share sale. In an asset sale, you part with the tangible and intangible assets that your company owns such as land, equipment, cash, patents, copyrights, goodwill, etc. In a share sale, you sell the shares, instead of your business assets. A share sale is beneficial as all liabilities are included in the sale, and you also gain tax exemptions. But, incorporation of the company is a mandatory requirement for a share sale. Hence, if your business is not incorporated, you only have the asset sale option.

Now, both of these methods come with advantages and drawbacks. The valuation of your business, its assets, and tax liabilities depend on the nature of your business and the method you choose. In addition to these considerations, you also need to evaluate the market conditions before initiating the sale. The wrong market conditions will not let you churn maximum profits from the deal.

Considering the complexity of a business sale, it is wise to work along with a professional accountant. There are various ways in which an accountant can prove to be beneficial. Read on to find out.

How an Accountant can Help in Selling your Business

Deciphering the Actual Value of your Business

How much is your business worth? If you’ve been considering selling your business, you may have estimated a number in your mind. But, is your business worth that price? Do you need to depreciate the value or do you think you deserve more? Without proper assessment, you will not be able to arrive at an accurate value for your business. To determine the sale price of your business, you need to ascertain the assets you own, the liabilities you owe, and what will be included in the sale. This can be further broken down into determining the value of each of your assets and liabilities. As a busy entrepreneur, chances are that you might miss out on critical liabilities, and also fail to assess the business performance in relation to the economic and market conditions. Such errors can result in losses or low profits. An accountant acts as your financial advisor. Since they are well-versed in the process of sale and are abreast with the current market scene, they can help generate an accurate picture of your business.

Structuring the Deal and Negotiating

Whether you are merging with a similar company or your company is being taken over by another entity, or there is a formation of a new enterprise, you have two ways of selling your firm – asset sale or share/stock sale. But, how do you know which sale structure will fetch you greater returns? Apart from the benefits and drawbacks, these means can have substantial tax implications on the deal. Your accountant will help you weigh the pros and cons of both the methods to determine which one is the best. Without an accountant, you will have to be fluent in these matters yourself. And, if you’re not, you may have a difficult time negotiating with prospective buyers. Lack of knowledge will reflect in the decisions you take, and buyers can take advantage of this. Sometimes sellers make a rushed decision and sell it using a method that is less profitable to them. You will save yourself from such costly errors if you have an accountant with you.

Minimize tax implications

Taxes are a complicated subject, often beyond the understanding of those who do not have any experience in the field. Until now, you had to deal with some critical business taxes. But now, you will have to encounter mysterious tax codes governing the sale of your business. Just as the deal structures vary, so do their tax requirements. You’ll need to estimate the taxes accurately, organize documents, verify filings, and do so in compliance with legal requirements. The business sale transaction involves millions of dollars. And, if you go wrong with taxes, you may have to part with a considerable amount of profits. The Canadian Revenue Agency may overlook the deal to ensure the taxation requirements are complied with. If you do not provide them with satisfactory answers, you may end up in trouble. An accountant can take away these worries from you. They will help you estimate taxes and avail of any tax benefits to safeguard your interests and save your time and money.

Risk evaluation of Prospective Buyers

You will not sell your company to the first offer that comes your way. Hence, apart from being smart at negotiating, you also need to conduct due diligence of your potential buyers to determine whether you are selling your venture to the right firm. You want someone who will treat your venture as their own and has the financial and competitive ability to take your business to successful heights. A thorough investigation of your potential buyer’s company and portfolio will reveal their eligibility for the transaction. At times, business owners fail to keep aside emotions while making decisions. A financial advisor, like your accounting partner, will help you with the due diligence by assessing and assigning measurable values to each of the accompanying risks. This eliminates the problems that may occur due to decisions based on emotions. The financial viewpoint helps you take logical decisions that are in your best interests.

Helps Present your Company in a Positive Light

Do you have all your financial statements in place? Are they reviewed and do they reflect the true value of your business? When you are considering a sale, your prospective buyers will want to have a look at your financial reports to assess the current status and the potential of your business. If you have been careless with the accounting and bookkeeping, then you will have a hard time selling your business. An accountant can make this task easier for you. They can produce and verify your financial statements for buyer review. Plus, they help you rectify errors and present the true value of your business. They also help you conduct an internal due diligence of your practices to discover and address any issues that can make your business appear unattractive. With a professional accounting partner by your side, you enhance your chances of a successful sale.

Selling your business is an event that demands time and a discreet attitude. Having a professional accountant by your side makes life easier. Plus, an accountant is your partner, who is there to offer their services even after the sale. They can help you strategize your future plans to ensure you have a financially secure future.

Whether you are planning to sell your business or you need help with financial management, connect with our accounting and bookkeeping experts at Altitude Accounting to help you resolve any of these issues with clarity.