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If you are considering a merger, acquiring another company, or prepping your business for sale, a business valuation is a critical component of the process, and important for all parties involved.
While there are a variety of professionals who offer business valuation services, a certified public accountant (CPA) is the best and most qualified option, here’s why.
The Role of an Accountant in a Business Valuation
Regardless of for what purpose you are conducting the business valuation, a CPA will play a few critical roles. Let’s take a look at those.
- Financial Due Diligence
- Accurate Valuation
- Financial Modeling and Predictive Analysis
- Financial Risk Audit
- Negotiation Support
Now, let’s consider the additional benefits a CPA offers in mergers, acquisitions, and sales.
In Preparation for a Merger
In preparation for a merger, a CPA will attend to all of the previously mentioned items, plus…
- Financial Due Diligence
In the context of an merger, a CPA will review and thoroughly analyze the target company’s financial statements, including balance sheets, income statements, cashflow statements, and other reports to identify any red flags, inconsistencies, and determine the overall financial health of the organization - Financial Forecasting
The CPA will additionally consider industry, geography, and comparative performance of similar companies, while developing financial models and projections. These projections will offer a framework for what revenue and expenses will be present after the merger is finalized, and how this will impact tax planning, current financial budgets and models, and future planning. - Regulatory Compliance
In addition to evaluating for compliance with GAAP accounting principles, the CPA will ensure the target company has been filing taxes accurate and ethically, prepare and disclose any information required by regulating bodies, and offer helpful guidance with regard to compliance. - Integration Planning
Your CPA will assist in integrating all financial systems and departments, including marrying software and standardizing data input, analysis, and reporting formats, updating any policies, and, critically, consolidating chart of accounts. Integration planning is an incredibly involved process, as a merger will change everything, including checks and balances, fraud risk, budgets, forecasts, and overall performance. - Post-Merger Analysis
Post-merger analysis includes analyzing projected performance against actual performance, identifying areas for improvement, and investigating any lagging issues or integrations. Additionally, the CPA will offer robust financial analysis on impact of the merger, including major financial achievements and the overall fiscal impact of the merger.
In Preparation for an Acquisition
In preparation for an acquisition, a CPA will also offer…
- Financial Due Diligence
Financial Due Diligence is critical in any of these relationships, but for an acquisition especially, it’s important to have an absolutely thorough understanding of the target company’s financial structure, tax structure, industry performance, and any financial risks you will take on by acquiring the company. - Complete Valuation
The CPA will determine the actual and fair value of the target company. The methodology followed sometimes depends on the type of company, but often includes evaluating current cashflows, market comparison, existing assets and client list, and additional valuations. The result will be an understanding of what is a reasonable price, and what value the acquisition will bring to your company. - Cost and Revenue Analysis
This process not only involves looking at how costs and revenues intersect and identifying potential areas to streamline, but also realizing any issues and how they might be resolved. Often, CPAs must take a close look, as when a company is up for sale, there can be well-hidden issues within cost and revenue projections and current numbers. - Tax Planning
Acquiring another company will greatly impact your costs, revenue, and assets, ultimately having a tremendous impact on your taxes. The acquisition itself will have tax consequences, and your CPA can advise on the most cost-effect and tax-efficient method for purchasing the company. Additionally, your CPA will offer any suggestions for how the overall tax strategy must change post-acquisition.
In Preparing Your Business for Sale
In preparation for selling your business, a CPA will also offer…
- Road to Sale Analysis and Planning
Deciding you want to sell your business is only one step. Many times, a 1-5 year plan and roadmap to sale will need to be put together to ensure you are able to sell your business at a good price, and that you have the performance metrics necessary. An initial consultant with a CPA will help you understand how far out you are from making a sale, and what a realistic timeline will be. - Financial Analysis and Improvements and Preparing Financial Statements
A CPA will work with you to generate up-to-date, clean, and thorough income statements, and balance sheets, and advise on any areas that need particular attention, tidying, or cleanup. - Business Valuation and P&L Analysis
A CPA will conduct a thorough business valuation and P&L Analysis that will help you set an asking price and serve as a negotiation point with potential buyers. Offering up historical data, including trends, seasonality, and potential areas of growth will help solidify the sale. Even if you have an in-house accounting team, it’s important to invest in an unbiased, third-party business valuation. - Outlining Business Drivers
Having a clear and thorough understanding of what drives business will make your business an interesting opportunity. This can include showing strong historical financial performance, a loyal customer base, growth opportunities, and more. - Negotiation Support and Transition Planning
A CPA in your corner will ensure you don’t accept a low offer and ensure that any further financial reports and analyses your potential buyer seeks can be tendered quickly. Additionally, a CPA can help you and the buyer develop a transition plan for how financial information, data, and process will be handed over.
In short, a CPA plays a vital role in business valuation that will ultimately impact the success and bottom line of any merger, acquisition, or sale. It’s important to reach out and get help early in the process.
