how accountants can keep the business when a client wants to sell theirs

the four-step process to use when a client asks for an outside consultant.

question: i have a client who’s thinking of selling his business, and he asked me to recommend a “consultant” to help him get his business in shape to sell.  i am afraid that if he finds someone on his own i’ll lose control of the client. he might end up not selling and i could lose the client. i do not know anyone to recommend.  what do you suggest i do?

ed’s response (including the 20-item checklist, “preliminary document request for a business valuation”):

i suggest that you decide what is best for the client and proceed that way.  you can find consultants by contacting other cpas, attorneys, or business brokers that work in this area.

however, i also think that this is something where you can probably do most of the work yourself or through your firm.  it is not a magic process, but a four-part process.

the first part is to collect and organize all the information a buyer would need to see.  the second part is to work with the client to highlight the benefits and advantages to a buyer.  the third part would be to help the client identify potential buyers and determine if there are any strategic buyers that could be approached.  the fourth part is to help the client determine a realistic selling price and a strategy for setting the starting price in the negotiations.

most accountants can organize existing data.  what is needed is a road map of the information that will be presented to a potential buyer.  i use a document request checklist for the business valuations i do.  this list can be used as a guide of what needs to be gathered for a potential buyer.  the buyer will need the information to determine the business’ value – it is the same information on the checklist.

the second part is to go through the client’s numbers and business model to determine why a buyer would want to acquire the company and what they intend to do with it and then position the business accordingly.  part of determining this is to factor in why your client is selling.

third part: in most situations, the most likely buyers are competitors or major customers.  also, you can suggest latent attributes of the business that might be synergistic with businesses that are not competitors or customers.  here you will assist the client in identifying companies that fall into these categories.

the fourth part is to quantify values.  you can always refer a business appraiser for a consultation with your client.  this is a specialized area you would not be expected to do.  i offer a special consultation engagement meeting to help in this regard.

 

checklist:

preliminary document request for a business valuation

this list is preliminary and upon receipt and review of the information, we may need to request additional documentation.

this request also applies to any related or affiliated entities or entities with common ownership that do business with the entity being valued.

if any information does not exist please state that.  if any information is not immediately available, please indicate when it could be expected.  you can black out the names of customers, suppliers, and employees if you wish.

we would prefer to have this information emailed to us.  however, any format is acceptable.

1. valuation date:
2. purpose of valuation:
3. all shareholder, partnership or members’ agreements in effect as of the valuation date and through the date of this request.
4. copy of the stock certificate or the legend, if any, appearing on stock certificates issued to the people transferring the interests being valued.
5. listing of all the locations business is conducted from.
6. organizational chart, if any.
7. all employment, consulting, management, or any other agreements in effect during the last five years and through the date of this request.
8. financial statements, if any, for the most recent five fiscal years with the accountants’ report, and any financial statements issued after that date with an accountants’ report.
9. federal and all state tax returns for the most recent five years, including all schedules, statements, forms, and attachments.
10. copies of the w-2 and 1099 forms for two years.
11. aged schedules of accounts receivable and accounts payable and accrued expenses as at the end of the last two fiscal years.
12. listing of 5 largest customers for each of the last three years and sales to them each year.
13. listing of 5 largest suppliers for each of the last three years and purchases from them each year.
14. copies of any contracts with customers or suppliers currently in effect.
15. copies of any commitments to buy equipment.
16. copy of all loan applications from the beginning of the second preceding fiscal year through the date of this request including all statements and attachments.
17. copy of all loan agreements, covenants, and notes from the beginning of the second preceding fiscal year through the date of this request including all statements and attachments.  we will need a schedule of the loan covenants and your compliance with them as of the end of the last fiscal year.  we also need copies of any bank correspondence after the loan was issued regarding your performance under the loan agreements.
18. copy of any agreement, outline, term sheet or proposed agreement for which this valuation is required, if any; or, if for estate planning or wealth transfer purposes, a listing of the individual gifts that are contemplated.
19. independent appraisals of any real estate.
20. independent appraisals of any equipment.  in the event that equipment values are not significant, we would accept in lieu of the appraisal a representation letter by the company’s management of what amount we should accept as the value of the equipment in connection with our valuation.

posted on july 24, 2012