When selling your own business, it is critical that you understand the points in the deal process when your attorney and CPA should get involved. The first point to make is that both of these parties must be involved in your selling process. You should think of them as a part of your “Exit Strategy Team.”
Your primary goal with your CPA is to minimize the tax impact of your sale. Small changes in deal structure can make large differences in your after-tax cash from the sale, or be the difference in whether or not a deal gets done at all. A seller can save literally hundreds of thousands of dollars in taxes as a result of deal structure and asset allocation decisions. If you have a small business that won’t sell for hundreds of thousands of dollars, don’t think there isn’t a role for a quality CPA. There is.
A typical CPA is going to charge you somewhere between $100 and $200 for a one hour consultation. For a smaller business, a good CPA should take no more than thirty minutes to give you an intelligent assessment of your tax exposure based on likely deal structures. Spending $100 to save $1,000 on a small business sale, or to make sure you simply didn’t miss an opportunity, is a good deal.
When to Meet with Your CPA
Meet with your CPA at two critical junctures: after you first decide to sell, and when you are evaluating an offer that includes any agreement on the structure of the deal.
The first meeting will allow you to develop an understanding of deal structure issues, particularly in terms of tax implications. This will make you a more informed decision-maker and a better negotiator. There are numerous internet based resources that will help you gain a base of knowledge that will make your time with a CPA more valuable. Simply type “how to sell a business” in a search engine like Yahoo, MSN or Google, and you will be able to find several quality resources.
A second meeting over a specific offer gives your CPA concrete variables to calculate your tax liability, and possibly reveal solutions to minimize it.
You may meet with your CPA more often if you have multiple offers over time. After you get a little education from him or her, you will be able to make some decisions on your own, but call your CPA before entering into a final and binding purchase agreement. If they are familiar with your situation, a shorter, cheaper phone call may suffice.
If you’re trying to economize, you can meet with your CPA only before committing to a deal that includes financial structure details that can affect your tax situation. We do advise working out allocation issues prior to a binding purchase agreement for the simple reason that you don’t want to get the parties committed to a deal and then blow it up over a meaningful change due to tax concerns.
TIP: All CPA’s are not created equal. You need one with experience in business transactions. If your normal CPA does not frequently deal in business transactions, then you need to find one who does. Ask CPA’s pointed questions to see if they seem to have a grip on the implications for a business sale.
A good business attorney will help you review your purchase agreement both for issues that protect your interests, and to ensure that it complies with legal requirements in your jurisdiction.
You can find excellent purchase agreement templates online that are designed to be balanced and treat both parties fairly. While you can settle most of the issues in your deal with one of these templates, be sure to have an attorney review the agreement before committing to it. Your deal or business may have unique attributes that need to be accounted for. In addition, each state has its own laws and regulations, and your attorney will ensure the standard required language in your state is included, either by changing the body of the form, or through an addendum.
When to Meet with Your Attorney
There are multiple points in time when you may want to consult with an attorney. There are two critical points, however, when an attorney must be involved. The first is prior to signing a binding purchase agreement, as noted above.
The second time an attorney must be involved is at closing. Do not, under any conditions, close the deal yourself only to save a few hundred dollars in attorney’s fees. It will come back to haunt you. Ideally, you should use an escrow attorney who is not representing either party to close the deal. If it is a larger deal where one party has an attorney on staff, you must use an independent attorney to handle the closing, or have both parties attorney’s manage the process together.
Attorneys have specialties. You want one who has been involved in numerous business transactions. Also shop prices. For a typical small business transaction, you don’t need a $1,000 per hour attorney, just one with experience processing business sales including business purchase agreements.
Use Your Exit Strategy Team
Although some key points at which to involve both your CPA and attorney in your deal have been outlined here, never hesitate to involve them at other points in the process when you have doubts or concerns of a tax, accounting or legal nature. It’s a lot cheaper to pay for an extra ten or fifteen minutes of time than it is to deal with the aftermath of a failed or flawed agreement!