Whether you’re looking to buy or sell a business, it’s a long process that requires business planning and implementation, business valuation, cash flow and other financial analyses, tax minimization and transition planning.
That’s why professional business accountants are ideal to use as business consultants when buying or selling a business. Learn how you benefit from a business consultant during the sale or acquisition of a business below.
The Benefits of Hiring a Business Consultant for Buying/Selling a Business
A general, high-level answer as to why you should be represented by a business consultant if you’re buying or selling a business is that they are experts in valuating businesses and are the best positioned to provide an accurate, unbiased opinion on the actual value of a business. There are numerous other benefits and protections you enjoy when being represented by an intermediary that can also save you from substantial losses.
Anonymity and Confidentiality
The process of buying or selling a business begins months before the actual sale. By retaining a service that provides consulting for small businesses, your identity and intentions remain private, which protects your business. If you represent yourself, your plan to sell your business becomes public knowledge and your business risks losing investors, suppliers, clients and others that can negatively impact your business and its value.
A business consultant is bound by both confidentiality and fiduciary obligations not to disclose any potentially-identifying information about their clients and to act in their client’s best financial interests.
A consultant acting for a seller will complete thorough and detailed research into your company and create a company summary that highlights all of its selling features for potential buyers to review. The consultant will also weed out pretenders who aren’t capable of purchasing your business and who would have wasted your time were you unrepresented.
Preparing, Drafting and Filing all the Necessary Paperwork
Numerous forms, agreements and other documents related to the sale need to be completed and submitted before their deadlines throughout the process. A business consultant takes on those responsibilities and relieves you of that burden which gives you peace of mind that you will not miss any deadlines and will remain in compliance.
Expert Business Valuation
Your business consultant should be an expert in evaluating businesses and have a real-time understanding of the current market values. Their job is to represent your interests and use their expertise to negotiate terms and conditions of the sale that benefit you and get you the highest purchase price available – including creating a bidding war.
A business consultant is also an expert at assessing the potential value of a business, so when acting as a representative of either the buyer or the seller, they can advise their clients as to whether they feel that the business for sale has the potential to become more profitable after the sale when it is under new management, whether they feel the business might deteriorate due to market challenges or if it will remain relatively the same.
Dealing With Multiple Offers
A business consultant will ensure that you only see legitimate offers by leveraging their relationships to find out if bidders have the funds to purchase your business. They will also help you choose between bids for the one that meets your demands.
What You Need to Do Before Buying a Business
Before buying a business, you must study it carefully to know what you might be buying into. These are the common steps taken when buying a business.
Perform Due Diligence Checks
Due diligence is a check of a business’s financials and legal status. The following are usually performed in a due diligence check:
- The financial statements and assets, including
- accounts receivable
- business name
- customer list
- prepaid expenses
- Confirming the vendor’s good faith and the health of the business. Getting confirmation from its current customers that they intend to continue doing business with the company, especially if they only have a handful of clients.
The best practice is to use in-house and outside experts to complete these checks.
Get an Independent Valuation of the Business
Your business consultant will perform this task. These are three common ways business valuations are completed:
- Earnings-based valuations
- This approach is often used when a business produces reasonable earnings and whose overall value is greater than its assets. Valuation is done by looking at both historic performance and forecasted earnings or cash flow.
- Market-based valuations
- A valuation done by this method multiplies one of the business’s key metrics like revenue or EBITDA (earnings before interest, taxes, depreciation and amortization). The metric and multiple used depend on the factors such as the size of the business, market conditions, the industry it’s in, etc.
- Asset-based valuations
- These valuations are done when the value of the business is mainly based on its assets.
How to Evaluate a Business’s Assets
You’ll need experts to determine the fair market value of a business’s assets. For example, a collection agency can advise you on the value of the accounts receivable, and a real estate agent on the value of the land.
Learn more about common accounting business mistakes.