The Importance of an Accountant When Selling or Transferring Ownership of a Business (Part I)

When the time comes to sell or transfer your business, whether to retire or just to move on to something new with your life, there are many accounting issues surrounding the planning for transferring your business. As you move through the process, make sure you take the appropriate steps not only to ensure you get full value for your business but also that you understand the tax consequences of the choice you make. By going through all of these steps, you can ensure the transfer or sale goes smoothly so you can move forward with your life.

Crunching the Numbers: The first thing you will need to do is consider how your business will look to those interested in buying or taking it over. Sit down with an accounting specialist to determine what discretionary expenses should be added back into the profits. This may include business vehicles, medical insurance for yourself and your family members, memberships, associations, and more. The reason you can add these expenses back into the profits is that your buyer may or may not choose to incur such expenses so there is no need for them to be shown as liabilities.

Calculate the Current Inventory: When you go to sell or transfer a business, your inventory will likely go with the business. For this reason, you need to know that you have an accurate count of your current inventory. Some businesses opt to determine the current level of inventory by calculating the cost of merchandise, which has been sold since the last physical inventory. This is one method used but it may be best perform another physical inventory to ensure counts are accurate. A number of inventory accounting methods are offered and your accountant can help you determine which method puts your business in the best light so you get the most for the sale or transfer.

Obtaining a Business Valuation: A business owner may choose to have his or her business valued to determine its current worth. There are many benefits to doing so other than just helping establish a selling price. When the business valuation is done, it will provide ideas for how best to improve the business so as to maximize its resale value. As with inventory, many methods may be used for a business valuation and an accountant can explain the advantages and disadvantages of each. Use of the wrong method could lead to a reduced selling price or other varying issues.

Estate Planning: The value of the company affects the tax consequences of the sale or transfer. If the company is not properly valued, the new owner or heirs may end up paying more in taxes than necessary. The IRS states there are eight factors, which must be taken into account as you value shares in a private company. The two main considerations involve the business structure and whether the assets are being sold or the entire entity. Sole proprietorships and most partnerships fall under the category of asset sales and yet many LLC’s and corporations qualify as this type of sale. Speak to your accountant about these and other factors, which play a role in taxes when selling or transferring a business.

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