Buying a small business is a huge step, even if you already own a business. That’s why it’s important for you to form the right team to help with the process.
One critical team member to consider is a monthly accountant. Not only are they necessary for the buying process, but they can provide invaluable financial insights to help you make informed decisions and avoid costly mistakes.
CSI Accounting & Payroll has more than 50 years of experience working with small businesses, including helping owners purchase their first or additional businesses, plus providing all of the insight they need for the future.
In this article, we'll explore:
- Who should be on your team to buy a business
- How an accountant can help you buy a business
- Red flags to look for in a business
- How to build profitability for a new business
Who Should I Work With to Buy a Business?
Your team should be small and consist of just an attorney and an accountant. It’s a misconception that you need a broker and a financial advisor to buy a business; they should be involved in the selling process.
Your attorney is vital in reviewing the purchase documents to make sure everything is fair to both the buyer and the seller. They should also help you draft new corporation documents, such as an operating agreement to show ownership percentages for any partners. This can cost a chunk of change, so it’s often skipped - but we wouldn’t recommend doing that!
Outside of these tasks, your accountant can help with the rest.
How Can an Accountant Help Me Buy a Business?
A monthly accountant has the knowledge to help you with due diligence. Similar to the steps an existing business needs to follow when seeking a loan, an accountant can help you look at three years of this business’s tax returns and financial statements to spot trends and determine current and future margins.
With this knowledge, monthly accountants can work with your attorney to ensure the conditions are fair. This can include the interest rates, length of term, and even the asking price for the business overall.
Your accountant will take many other things into consideration, such as what should happen with the sale. For example, they might advise on whether it should be a stock sale or asset sale, or they can help you define your entity structure.
The biggest thing your accountant does is see if you and this business are a match from a financial perspective, including whether or not you can afford the monthly payments to make this deal.
The accountant you work with shouldn’t be afraid to tell you if you’re about to enter into a bad situation, and they should help you keep an eye out for red flags. Let’s review some examples.
What Are Red Flags to Look Out for When Buying a Business?
Some things that may ring alarm bells to your accountant include:
- They can’t produce computer-generated financial statements (uses manual methods instead, such as Excel).
- Their Balance Sheet does not balance with their Profit & Loss Statement.
- Their financial statements don’t match their tax returns.
- There are irregularities in revenue or in major expenses (often payroll).
- Their client income is skewed (one client makes up a majority and can greatly affect the business if they leave).
- Their income is pumped up (investments and purchases stopped, falsely “increasing” income while trying to sell).
- They don’t have their paperwork together.
- They can’t or won’t answer basic questions about their business (meaning they are not attentive and may be unaware of pending issues).
- They are looking to sell very quickly.
- They are not represented by a broker but want a quick turnaround.
- They greatly reduce their purchase price if you don’t make a deal right away.
Any one of these red flags can mean you may want to walk away from the deal, as it can indicate shady business practices, hidden issues, or a hugely disorganized business.
How Do You Start Building Profitability for Your New Business?
Of course, once you buy a business, you may not be thinking about selling it one day for quite a while. However, building your profitability is a great place to start investing in your future when you retire someday.
One of the best ways to do this is to partner with an accountant. However, you still need to determine the right time for you to work with the right level of accounting service.
Once you reach the point of being ready to work with a monthly accountant, they can help you:
- Legally minimize your tax liability
- Maximize revenue
- Reduce costs and capture leaking expenses
- Identify bad trends
- Handle other related services, such as taxes, payroll, and consulting
- Answer all of your relevant questions
That’s not everything, though! Learn more about the types of advice an accountant can give you by clicking the image below:
Work With a Monthly Accountant With Business Buying Experience
When buying a small business, it is crucial to have the right team in place, including an attorney and a monthly accountant. As a team, they can help with the financial and legal aspects involved.
If you’re ready to work with a monthly accountant, why not check out CSI Accounting & Payroll? We have over 50 years of experience in the buying process discussed in this article. Click the button below for a free consultation to see if we can be a good fit for your business:
Not ready to talk? That’s okay! First, learn more about advising versus consulting services and which may benefit you more.
