The core purpose of a Certified Public Accountant (CPA) is to make sense of a changing and complex world. All CPA candidates must pass the Uniform CPA Examination to qualify for a license to practice public accounting. In addition, most states/jurisdictions require at least a bachelor’s degree and accounting work experience to become a CPA. CPAs are expected to be competent, ethical and objective.

CPAs in public practice provide a wide range of services, including accounting, auditing, tax, consulting, financial planning and business valuations, among others. With respect to a potential transaction, CPAs assist owners and executives of small and medium-sized enterprises by providing services related to the assessment of the enterprise, tax planning and structuring, sell-side due diligence and assurance.

What You Need To Know

The selection of a CPA can have a significant impact on the future sale of your enterprise, as your CPA will be involved throughout the transaction process. As previously discussed, tax and financial planning and diligence can occur for years leading up to the transaction, and your CPA is an integral part of this process. In addition, your CPA can help respond to questions from potential buyers and provide information already gathered, thus lessening the burden on you and allowing the owners and executives to continue focusing on the business, a factor that should not be overlooked. Small and medium sized enterprise owners and executives should consider the following factors when selecting a CPA:

Specialization in sell-side due diligence and tax structuring
With regard to your potential transaction, all CPAs are not created equal. A firm that primarily focuses on assurance services but does not possess a dedicated transaction team may leave you underserved and underprepared for your transaction. Ask CPA firms questions such as (i) Do you have dedicated employees that only work on transactions? (ii) How many transactions do you work on in an average year? (iii) What types of tax structuring have you been involved in during the last few years?

Depth of resources
As you plan for and execute a sale, you will likely desire assistance in several different areas. As a result, a CPA firm that has extensive resources may be able to offer a more complete package, including wealth management, specialized tax advisors, information technology consulting and business valuation services, among others. Ask your CPA firm what types of ancillary services they are able to provide if necessary, and how those services have been utilized on transactions in the past.

Experience with companies of similar size
The accounting, tax and operational issues are not the same for small and medium-sized enterprises as they are for larger companies. The availability of resources and capabilities of information systems generally differ, and as a result, it is imperative that your CPA has experience with companies of similar size to yours. Inquire of CPA firms regarding their experience with companies your size and with your reporting abilities.

Industry expertise
As you know, the primary risk areas in a health care provider are drastically different than the risk areas in a contractor. Working with a CPA firm with deep expertise in your industry not only makes the process smoother for the business owners and executives, but can increase the perception of the work product in the eyes of potential buyers. Ask CPA firms for examples of other clients they have worked with in your industry.

Partner involvement
This is likely the only time you will ever sell a company, and you want to make sure you are in the right hands, including having direct access to the partner assigned to your engagement. Inquire of CPA firms regarding their staff to partner ratio to get background on the staffing structure, and discuss the role the partner will play in your transaction.

Process, Responsibilities, Deliverables

There are many different services your CPA firm can and should provide throughout the process. The chart and narrative below outline an example of the various phases of involvement your CPA firm can add value.





Enterprise assessment

Beginning several years prior to a planned transaction, CPAs can assist owners and executives by helping define the value drivers of the enterprise and discussing ways these value drivers can be enhanced during the years leading to a transaction in an effort to maximize the value of the enterprise. Services during this period may include strategic planning, assessing the quality of the financial statements and identifying improvement opportunities, preparing or evaluating budgets and forecasts and benchmarking the enterprise against the industry.

Tax planning and structuring
The ultimate “success” of a transaction for a business owner may depend on effective tax planning and structuring. The business owner should understand the different types of transaction structuring available and how each structure will impact the post-tax cash to be provided to the business owner. In addition to tax structuring advice, services during this period may include a cash-flow needs analysis, retirement planning, income tax planning and personal wealth planning.

Sell-side due diligence
In the months leading to a planned transaction, CPAs can assist owners and executives by providing a buyer’s perspective of the enterprise. This will educate the owners and executives regarding questions a buyer will likely have and prepare the owners and executives for the planned transaction. Services during this period include evaluating the enterprise’s quality or earnings, including identification of one-time expenses that should be added back by management, directly impacting the enterprise value, as well as analysis regarding a normal level of net working capital that should be transferred, presentation of reported and adjusted financial statements, and gathering of key information that will be needed to provide to potential buyers. These services are intended to help avoid disputes with the buyer during their evaluation of the enterprise and help set management’s expectations regarding enterprise value to avoid being blindsided during the execution of the transaction. CPAs typically work with investment bankers during sell-side due diligence to ensure information presented by the two groups is consistent.

A quick and easy way to stop a potential transaction in its tracks is for a buyer to lose confidence in the quality and accuracy of a seller’s financial statements. As a result, it is often preferred to have a CPA involved in the preparation of historical financial statements, which provides credibility to a buyer evaluating your business. The highest level of CPA involvement includes an audit of your financial statements, although a review and compilation are also available. In addition, preparation of complete and accurate tax returns will assist a buyer in evaluating the tax impact of the potential transaction.

By Mathew Klauser
BKD Services