It’s never easy to sell a business, even how small it is, such as a food stand and family-owned restaurant. More so, if you’re planning to sell a franchise or a company. There are many important things to consider when you’re planning to sell your business – from preparing financial reports and business valuation to taxation and legal compliance. In these situations, a chartered accountant is the best source of help. Check Page Kirk’s website to know how a chartered accountant can help you.
Furthermore, have knowledge of the role of a chartered accountant and how they can help you sell your business by reading this article until the end.
What Is A Chartered Accountant?
Accounting professionals worldwide who have a chartered accountant (CA) designation are equal to certified public accountants. A chartered accountant focuses on one specialty area, such as the following:
- Audit And Assurance: Chartered accountants provide audit and assurance services, such as reviewing financial statements. As mentioned, if you’re selling your business, you need a chartered account to review your financial documents and business contracts.
- Financial Accounting And Reporting: A chartered accountant can help you sell your business by creating a detailed financial report of your past and recent sales performance, attracting potential business buyers.
- Management Accounting: Chartered accountants can help managers make smart business decisions. Management accounting or cost accounting involves identification, analysis, interpretation, and information communication to help managers achieve their business goals. So, if you’re selling your business, hiring a CA can be at your best advantage.
- Applied Finance: This accounting specialty includes financial instruments, markets, and institutions, like an investment, risk management, and banking. Know your funding options before selling your almost-bankrupt business with the aid of applied finance services.
- Taxation: Selling a business also involve complex taxation laws. A CA is highly knowledgeable and skilled in applied finance and taxation to resolve tax issues that usually frustrate interested business buyers.
How Chartered Accounts Can Help Sell A Business
Now that you know what chartered accountants are and their specialization, it’s time to know how they can help you sell your small business.
Conduct A Business Valuation
Many people who are selling a business have many questions, especially about the price. So, do you know how much your business’s worth? Thankfully, chartered accountants use business valuation to determine the value of a business.
Check the following business valuation strategies that chartered accountants usually apply:
Asset-based method: This involves looking at the company’s assets and liabilities by computing the difference between these two. Assets include your account receivables, equipment, and infrastructures, whereas liabilities include debts the business owns to creditors. For instance, if you have $200,000 in assets and $60,000 in liabilities, the value of your business is $140,000.
By offering debt management solutions and recommendations, a chartered accountant can help increase your net assets before selling your company.
Market method: This valuation method compares your business to similar businesses already sold, depending on the market. A chartered accountant can also offer this valuation method if it’s more suitable for your case. For example, if you own a bakeshop, and other bakeshops in your area are selling $80,000 on average, then your business is also worth the same amount.
Selling a business using this method will help determine its fair market value or the net worth a potential buyer is willing to pay. Now, your business’ final value will depend on what sets your business apart from the rest, such as better baking equipment or employing the top-notch chef, given the stated example.
Income method: A chartered accountant reviews your small business’s financial history to determine its value. Your books will show if your business is a profitable and low-risk investment.
Many business buyers take out a business loan to buy a company, so they want to know if they can generate good profit to pay for their loan. A chartered accountant can create a detailed financial report of your past profits and existing cash flow, as well as the business’ projected net profit.
Related: Business Valuation Methods
Organize And Structure A Business Deal
Selling your business doesn’t necessarily mean completely giving up your role as a business owner nor not having to do with the business anymore. A chartered accountant provides expert advice, such as merging your business to another similar business or a larger company taking over your small business.
Organizing and structuring a good business deal may include selling your business’s equity, assets, such as the majority of stocks, equipment, intellectual property, or a mix of these assets.
Chartered accountants are responsible for:
- Determine the type of deal structure that’ll provide you the highest asking price.
- Identify the advantages and disadvantages of each option in layman’s terms so that you can make a sounder business decision.
- Helping you negotiate the best deal with the least problems involve.
Tackle The Tax Aspects Of Selling A Business
Selling a business could mean paying a hefty tax bill that could only get half of the purchase price once the taxes are paid. The IRS will ensure that your generated profit from selling your business is taxed. Otherwise, you and the new business owner would be in big trouble.
A chartered accountant knows that the amount of tax in selling a business depends on the sale's capital gains and taxable income portion. Because the tax applied for capital gains is lower than the sale's taxable income, your accountant will help allocate most of the sale price to the capital assets.
The tax picture may be good for you, but not for the buyer. For smoother negotiations and tax purposes, a chartered accountant helps allocate the price to different components of the deal. With an expert’s help, you’ll know how to go about the following:
- The portion of the sale price applies to both individual and intangible assets
- Determining the buyer’s tax consequences
- Ordinary income tax from the sale
- Determining the factors influencing your tax basis, like the casualty losses, selling expenses, and depreciation deductions
- Identifying the additional liabilities that the buyer will take over
Evaluate The Risks Of A Sale
Expect that your potential buyers will be investigating diligently to know your company’s reputation, portfolio, and liabilities, which are factors that make your business easy to sell. Similarly, you also need to work with an experienced accountant to find out and address any factors that could make your small business look unappealing to your buyers. This means that your accountant should conduct an internal audit for your benefit and so as the buyer.
Here’s how a chartered accountant can evaluate the risks of selling your small business:
- Assess all possible risks by internally auditing books and financial documents
- Assign a measurable value for each risk
- Identify reasons to help you make objective decisions and not based on emotions
Related: Small Business Risk Management Guide
Act As Financial Advisors
An accountant can be helpful even after the sale, helping you plan your next investment or retirement. Chartered accountants are highly proficient in investment markets that you might find attractive, such as bonds, stocks, and retirement savings.
How To Choose A Chartered Accountant
Now that you know the roles of chartered accountants in selling a business, it’s time to learn how to choose the right accountant for you.
Here are some tips when choosing a chartered accountant:
- Find an expert accountant: Hire someone who has handled selling a business in the past. This means choosing an accountant who worked in market sectors similar to yours. Find out if the accountant has worked with larger clients as this can help you sell your small business.
- Inquire to business and government associations: You can approach accounting business associations and government associations, such as other business owners, local chambers, and voluntary organizations, to help you make the right decision.
- Tap into your social networks: Your family, friends, or past employers and acquaintances may know chartered accountants in your area. Consider their referrals to help you create a shortlist. Then, conduct interviews to narrows down your options.
- Check credentials: Check the candidate’s credentials, including certificates, licenses, and diplomas. You want to make sure that you choose a reputable and qualified accountant with high-level knowledge of using the right tools so they’ll be able to do their job faster and better.
- Do background checks: Before signing the dotted line, conduct a background check by interviewing your prospective accountant's clients. This will help you confirm the information that the candidate has provided to you.
- Interview prospects: Before you make a final decision, interview the candidates to gauge their soft skills, too, aside from their level of accounting knowledge. It pays off when you choose someone you can comfortably speak to.
Selling a business is more hassle-free with a chartered accountant by your side. Accountants can help you determine how much your business is worth and organizing and structuring a deal. With the help of an accountant, you’ll learn the tax aspects and the risk of selling a business. Also, chartered accountants act as financial advisors, guiding you to your newfound wealth.
About the author: Juana Lyons regularly creates and publishes content on business and finance. Juana understands that finance is one of the most important facets in business and in life, and uses her blog to teach people how to better manage this resource. During her leisure, Juana loves to spend time with her pets at home.