Category Archives: Accounting Issues

5 Things to Consider if You Plan to Retire From and Sell Your Business in 5 Years

Last week, Bloomerboomer.com published my article on this this subject. Bloomerboomer.com provides advice on a variety of subjects to baby boomers who are nearing retirement.  They asked me to provide some tips to business owners planning for their retirement (and a sale of their company) in five years. While you can see the article for all the details, here are the highlights: 1.  Institutionalize Your Company's Management Team:  Business owners need to move away from the day to day Read More [...]

Maximizing the Value of Your Deal: Prepare!

Selling a company requires the same level of planning that any other business activity requires.  With advance planning, you'll be able to significantly increase the post-tax value of a transaction.  Surprisingly, many of my clients don't start the planning cycle until it is too late. Last week, Middle Market Executive published the second in my series on the Inner Workings of a Deal, entitled "Preparing for a Deal: What to Expect When You're Expecting." While my full advice can be seen in Read More [...]

Understanding Working Capital in a Transaction

Handling working capital in a transaction is an issue that is often difficult for sellers of middle market companies to come to grips with.  While grossly oversimplified, in most cases, the practical definition of working capital for transactional purposes usually means the amount of the company's accounts receivable less the amount of the company's accounts payable.  (Other items can be important from company to company including inventory, accrued compensation, and other amounts, but in most Read More [...]

Buyers Are All About Metrics

Last week, Middle Market Executive published an article I wrote entitled Knowing Your Financial Metrics Can Increase Your Company's Value to Buyers (and Make It Easier to Manage Along the Way). While I won't repeat the whole article here, I wanted to draw your attention to a couple of key points. First, while many middle market owners may feel comfortable managing their companies by "gut feel," buyers expect and want more.  Inevitably, buyers (whether financial or strategic) will feel compelled Read More [...]

Consider an S Corp Election

A surprising number of my clients continue to be organized as C corporations, and have not taken advantage of making an S Corp election.  This can be a potentially costly oversight if the company's owners are looking to sell at some point in the future, particularly since in many cases, there are no significant disadvantages to making the S Corp election. The key reason to make an S Corp election is to avoid the double taxation that is inherent in the C Corp structure.  When a C Corp makes money, Read More [...]

Tip for Sellers: Adopt an Appropriate Revenue Recognition Policy

Although "revenue recognition" sounds like an arcane topic (and it is), selling business owners should beware, as the timing of costs and revenues repeatedly causes troubles for middle market transactions.  Because of the complexity of the accounting rules around this topic, many deals struggle to get through economic due diligence due to sellers' lack of understanding of this issue.  The result is often that after an external review, buyer's accountants appropriately (but unexpectedly to the seller) Read More [...]

Calculating your Company’s True Profitability: What Adjustments to EBITDA are Appropriate?

While hardly the only option, it has become fairly routine for middle market transactions to use EBITDA as the measure of value.  EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization.  So, it is effectively a company's net profit plus any expenses incurred for interest, taxes, depreciation and amortization. Despite sounding like a relatively straightforward calculation, it is important to carefully analyze this number along with the company's financial statements Read More [...]