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by H2R CPA
For some business owners, succession planning is a complex and delicate matter involving family members and a long, gradual transition out of the company. Others simply sell the business and move on. There are many variations in between, of course, but if you’re leaning toward a business sale, here are seven ways to prepare:
1. Develop or renew your business plan. Identify the challenges and opportunities of your company and explain how and why it’s ready for a sale. Address what distinguishes your business from the competition, and include a viable strategy that speaks to sustainable growth.
2. Ensure you have a solid management team. You should have a management team in place that’s, essentially, a redundancy of you. Your leaders should have the vision and know-how to keep the company moving forward without disruption during and after a sale.
3. Upgrade your technology. Buyers will look much more favorably on a business with up-to-date, reliable and cost-effective IT systems. This may mean investing in upgrades that make your company a “plug and play” proposition for a new owner.
4. Estimate the true value of your business. Obtaining a realistic, carefully calculated business valuation will lessen the likelihood that you’ll leave money on the table. A professional valuator can calculate a defensible, marketable value estimate.
5. Optimize balance sheet structure. Value can be added by removing non-operating assets that aren’t part of normal operations, minimizing inventory levels, and evaluating the condition of capital equipment and debt-financing levels.
6. Minimize tax liability. Seek tax advice early in the sale process — before you make any major changes or investments. Recent tax law changes may significantly affect a business owner’s tax position.
7. Assemble all applicable paperwork. Gather and update all account statements and agreements such as contracts, leases, insurance policies, customer/supplier lists and tax filings. Prospective buyers will request these documents as part of their due diligence.
Succession planning should play a role in every business owner’s long-term goals. Selling the business may be the simplest option, though there are many other ways to transition ownership.
Contact H2R CPA at 412-391-2920 or email@example.com for more information related to selling your business, including succession planning, business valuation, tax planning or due diligence. Our team would be pleased to provide a complimentary consultation.
by H2R CPA Team
A company's management team is often interested in painting the rosiest possible picture of a company’s financial performance. But aggressive earnings management, or “spin,” can mislead investors and lenders. Here are some ways U.S. Generally Accepted Accounting Principles (GAAP) can be manipulated to obscure the truth.
Creative accounting vs. cooking the books
Earnings management usually starts out small, but it can become increasingly aggressive and eventually cross the line into fraud if it goes unchecked. An external audit may help detect the red flags of earnings management, including:
Premature revenue recognition. Some companies recognize revenue early to make the income statement temporarily appear more attractive. This ploy is common when a company is applying for bank financing or up for sale.
Miscellaneous “cookie jar” reserves. Management can create a hidden reserve of funds during good times. Then the reserves can be tapped into to nourish earnings in lean times.
“Big bath” restructuring changes. Some companies overstate the costs associated with restructuring. This enables them to clean up their balance sheets and create reserves for a rainy day.
Immediate acquisition write-offs. Acquired companies may classify a portion of the purchase price as “in process research and development,” which they immediately write off. This reduces the amortization of the purchase price to future earnings.
Overreliance on EBITDA. Earnings before interest, taxes, depreciation and amortization (EBITDA) and other non-GAAP metrics have become popular ways to evaluate a company’s performance. But they aren’t usually audited, and they may be calculated differently from company to company.
EBITDA is generally intended to resemble cash flow. But this metric can obscure problems for start-up companies with major debt. Although their EBITDAs give these start-ups appeal, their debt service may mean they won’t be profitable for many years.
Too good to be true?
Pay attention when reviewing financial statements and corporate press releases — the opportunity and pressure to spin earnings is everywhere.
Contact H2R CPA at 412-391-2920 or firstname.lastname@example.org for more information on how to identify when a business may have engaged in “creative” accounting practices to improve their financial picture. Our team would be pleased to provide a complimentary consultation.
by Brett Fulesday, CVA
As part of H2R CPA’s Litigation Support practice, we provide expert consulting and testimony services to assist counsel and their clients going through divorce and marital disputes. Family-law attorneys often require these services on behalf of dependent and independent spouses in cases involving a variety of complex issues.
Beginning with this post, and on a continuing basis, we will highlight a specific Pennsylvania-based, family-law case and identify a few of the meaningful – and complex – topics at play.
Let’s start with Susan M. Berry v. Douglas R. Berry.
Filed on May 2, 2006, in Pennsylvania Superior Court, on appeal, Ms. Berry (the Mother) contended that the trial court erred in the following ways:
The Mother’s contentions revolved around the Father’s income, which gave rise to such issues as:
These are not random issues that have no practical application; rather, these are issues that we confront in nearly every divorce-related engagement. Understanding their meaning and application is essential. We acknowledge – and embrace – this reality, which helps to explain why family-law attorneys have turned to H2R CPA for assistance for more than 30 years.
Contact H2R CPA’s Litigation Support practice at 412-391-2920 or email@example.com to learn more about our family law expert consulting and testimony services. Our team would be pleased to provide a complimentary consultation.
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For additional insight and expertise, visit the following blogs from some of our CPAAI member firms:
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