How to buy a business from an accounting perspective

[bigspender]

I am curious as to how accountants advise and work with clients who are buying an existing business (100k-1m in price).

How would you advise your clients? What steps should they take?

I ask because understanding the value and importance that an accountant can bring the the process seems to be underrated and a little unknown. I am almost curious to know for my own education.


Sent from my iPhone using Tapatalk

 

[Nick Kay]

As a Management Accountant my focus would be on identifying a suitable purchase price range for the business, understanding exactly what is being purchased (and why) & researching the opportunities and risk that are provided by the specific business and the industry it is in.

You could do this quite systematically by reviewing the historical finances, working with some well known models and producing some future forecasts for the future business.

I would also work with my legal and tax contacts to ensure the deal & business could be funded & structured in the most beneficial way for the buyer.

 

[Chris Ashdown]

The accounting side is one side as Nick reports, but Due Diligence is a much wider area than just the accounts, its the whole ethos of the company and its employers and the future of its ability to keep competitive in ever changing environments, and also the loss of its most senior manager who normally is the owner and leaves when the company is sold

 

[bigspender]

excellent answers from Nick and Chris.

Nick - what do you mean when you say "working with some well known models"?

I assume the examining the historical financials would be somewhat like auditing? forecasting would involve cashflow forecasting, future P&Ls and assessing capital requirements?

 

[Nick Kay]

I should of been more specific...in terms of models I was referring to things such as Porter's 5 Forces (to understand the industry that the business is in)...SWOT analysis on what you know about the business...using the McKinsey's 7S model, which may highlight some of the areas that Chris mentioned. Another useful tool could be to use Johari's Window to highlight all the knowns and unknowns in your knowledge of the business, as this would highlight possible key areas where more research and due diligence is required.

For the financial statements, it would be auditing in the sense of using the historic statements to pickup on trends, abnomalies, large areas of spend, benchmarking against industry averages and generally getting a feel of areas where there could be risks or opportunities. Yes, spot on with the forecasting, that is exactly what you would be looking at...

Hope that helps.

 

[bigspender]

Very useful nick.


Sent from my iPhone using Tapatalk

 

[lawyerfair]

another key answer to this question ... make sure you're working with advisors who have experience in buying/selling businesses. inexperienced advisors can kill perfectly good or commercially sensible deals with a lack of deal nous. running the numbers is fine, understanding what gets a deal over the line is something else.