What Your Accountant Needs to Know If You’re Thinking About Selling

Most business owners have a good relationship with their accountant. They file taxes, review the year-end numbers, maybe talk through some planning at the end of the fiscal year. It is a professional relationship built around compliance and reporting.

What that relationship is rarely built around is a business sale. And if you are thinking about selling, that gap matters. A lot of the planning that makes a transaction significantly better for the seller, financially, has to happen before the deal is in motion. Once you are in a process, most of the levers are already locked.

Tax Structure Is Not a Closing-Day Decision

The structure of a business sale has enormous tax consequences, and many of the decisions that affect those consequences need to be made years in advance, not weeks. Whether the sale is structured as an asset sale or a stock sale, whether installment sale treatment makes sense, how the purchase price gets allocated across different asset classes, whether an opportunity zone or qualified small business stock exclusion applies. These are not details to figure out at the closing table.

An accountant who knows a sale is on the horizon will structure the business differently than one who does not. Depreciation timing, retirement plan contributions, income recognition, entity structure. All of these can be managed more strategically with several years of runway than with six months.

The Entity Structure Question

One of the most impactful pre-sale planning conversations involves entity structure. A C corporation selling assets faces a very different tax picture than an S corporation or an LLC taxed as a partnership doing the same transaction. In some cases, converting from one structure to another before a sale makes significant financial sense. But that conversion has its own tax consequences and requires time to execute correctly.

This is not a conversation to have once you have a letter of intent in hand. By then, the structure is largely determined by the buyer’s preferences, and your ability to influence it is limited. The time to think through entity structure is well before any deal is in sight.

Making Sure Your Books Are Sale-Ready

Buyers and their accountants will review your financials in detail. If your books have been managed primarily for tax efficiency, they may not present the business in the most favorable light for a sale. Revenue recognition, expense categorization, the treatment of owner compensation, the handling of related-party transactions. All of these areas can look different under sale scrutiny than they do under tax scrutiny.

Your accountant can help you understand what a buyer’s team will see when they review the numbers and whether anything needs to be addressed before you go to market. That review is far more useful done proactively than reactively.

Having the Conversation

Some owners avoid telling their accountant they are thinking about selling because they are not sure they will follow through, or because they worry about confidentiality, or simply because they have not gotten around to it. All of those are understandable. None of them outweigh the cost of not having the conversation.

You do not need a firm timeline to have a useful planning conversation with your accountant. You just need to say that a sale is something you are considering in the next several years and ask what they would want to have in place from a tax and financial standpoint before that happens. That conversation, had early enough, is worth real money.

Building the right team around a sale starts well before any process begins. The Exit Advantage℠ Program helps owners work through exactly these questions while there is still time to act on the answers. Reach out for a confidential conversation.

Steven Pappas, M&A MI
Partner, Managing Director
Touchstone Advisors
860-669-2246
spappas@touchstoneadvisors.com