In the process of buying, and owning, a business, a good accountant can help you significantly. Here are some specific ways in which an accountant should help you buy a business.
Analyzing financial statements. An accountant can compare the target company’s financial ratios to industry averages. This can put the target’s financial statements into perspective and show you how well the company is doing. An accountant can also show you the trends in the financial statements over time to give you a perspective on the direction the business is going financially.
Be sure to look not only at the income statement, but also the balance sheet and the cash flow statement. Many small businesses won’t have a cash flow statement, but your accountant should be able to prepare it from the other statements. Ultimately, a good business should generate cash and the cash flow statement will show you if it is, how much, and how the cash is being generated.
Business valuation: An accountant may be able to prepare a valuation for you or help you analyze a business valuation prepared by another appraiser. Just because someone is an accountant doesn’t mean they are qualified to prepare business valuations. Check their credentials.
Due Diligence. When you get the business under agreement, your accountant should help with the due diligence by checking the documents that verify the financial information. An expert in the particular type of business you are buying, such as a former business owner, can be very helpful in doing the due diligence. They can streamline the process by knowing what to look for and they should be able to spot problems more quickly.
Tax advice. Part of the sale process is deciding on the asset allocation. This affects your future taxes and how quickly you can write off the purchase. A tax accountant can recommend an asset allocation and advise you on how a proposed allocation will affect you.
Financing and Business Plans. An accountant can help you prepare the business plan which you need for loan applications to buy the business.
Your accountant is a key business advisor. Choosing the right one is important. But, remember, you should be making the decisions.
For additional help in finding or buying a small business, contact us — 617-562-5700 or email@example.com.