When it comes to business transactions, knowing whether to involve a CPA or an M&A attorney can make all the difference. This guide helps you navigate that choice.

When to Involve a CPA vs. an M&A Attorney

Understanding when to engage a CPA (Certified Public Accountant) versus an M&A (Mergers and Acquisitions) attorney is crucial for anyone looking to buy or sell a business. Each professional brings unique expertise to the table, and knowing the right time to consult each can significantly impact the success of your transaction. This article will explore the roles of CPA and M&A attorneys, the types of situations in which each should be involved, and provide guidance on how to effectively utilize their services along the business acquisition or sale process.

Introduction

Entering the world of business transactions can often feel overwhelming, especially when it comes to deciding which professionals to consult. The interplay between financial, legal, and operational elements in buying or selling a business requires careful planning and expertise. At the heart of this journey are two key players: the CPA and the M&A attorney. While both are essential to a successful transaction, their roles, skills, and the timing of their involvement differ significantly. This post aims to illuminate those differences, helping you make informed decisions that align with your business objectives.

The Role of a CPA in Business Transactions

CPAs play a pivotal role in ensuring the financial health of a business during a transaction. Their expertise primarily revolves around financial analysis, tax implications, and due diligence.

• Financial Due Diligence: One of the most critical roles a CPA can fulfill is conducting financial due diligence. This process involves thoroughly examining the financial statements, tax returns, and other relevant documents of the business being acquired or sold. A CPA can identify potential financial risks and ensure that you understand the true financial picture of the business.

• Valuation Services: CPAs can provide essential valuation services. They help determine a fair market price for a business based on various valuation methods such as asset-based, income-based, and market-based approaches. Their insights into the financial metrics such as Seller’s Discretionary Earnings (SDE) and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) are invaluable during negotiations.

• Tax Implications: Engaging a CPA early in the process allows you to navigate the complex tax landscape associated with business transactions. They can advise on the tax implications of different transaction structures, helping you minimize tax liabilities and maximize after-tax proceeds.

• Example: If a business owner is considering selling their company, a CPA would be instrumental in preparing financial documents and forecasts that would appeal to potential buyers. This financial groundwork could directly influence the selling price and terms of the sale.

The Role of an M&A Attorney in Business Transactions

While CPAs focus on the financial aspects, M&A attorneys specialize in the legal side of business transactions. Their expertise is integral to navigating the complexities of corporate law, contracts, and regulatory compliance.

• Contract Negotiation and Drafting: M&A attorneys are responsible for drafting and negotiating the sale or purchase agreements. These documents are foundational to the transaction and must be precise to protect the interests of their clients. Attorneys ensure that all terms of the deal are clearly articulated, including contingencies, warranties, and representations.

• Legal Due Diligence: Similar to financial due diligence, legal due diligence is crucial in assessing risks associated with a business transaction. An M&A attorney will review contracts, leases, employment agreements, and any pending litigation. This process helps identify potential legal issues that could affect the viability of the transaction.

• Regulatory Compliance: M&A attorneys are well-versed in the legal requirements and regulations that govern business transactions. They help ensure compliance with federal, state, and local laws, which is critical in avoiding legal pitfalls that could derail a transaction.

• Example: When a company is looking to acquire another firm, the M&A attorney would conduct a thorough review of all legal documents related to the target company. This includes reviewing existing contracts with customers and suppliers to identify liabilities that may not be immediately apparent.

When to Involve a CPA

Knowing when to involve a CPA can save time and resources, ensuring a smoother transaction process.

• Early in the Process: Engaging a CPA early in your transaction process, especially if you’re considering selling your business, is crucial. They can help you prepare your financial documents and establish an accurate valuation, setting a solid foundation for negotiations.

• During Financial Due Diligence: If you’re on the buying side, having a CPA conduct due diligence on the target company’s financials is essential. This insight can reveal hidden risks or opportunities that could significantly affect your decision-making.

• When Evaluating Tax Strategies: Before finalizing any transaction, understanding the tax ramifications is vital. A CPA can advise you on the most tax-efficient way to structure the sale or acquisition, potentially saving you substantial amounts of money.

When to Involve an M&A Attorney

Similarly, the timing of when to engage an M&A attorney is equally important.

• Before Negotiating Terms: Before entering into negotiations, it’s wise to consult with an M&A attorney. They can help determine the most favorable terms for your deal based on your objectives and the current market environment.

• During Due Diligence: Just as you would involve a CPA during financial due diligence, involving an M&A attorney during the legal due diligence phase is essential. Their expertise in identifying potential legal issues early on can save you from unexpected challenges later in the process.

• When Drafting Contracts: Once you’re ready to move forward with a transaction, an M&A attorney’s role becomes critical. They will draft and negotiate the purchase agreement, ensuring that all terms are legally binding and in line with your interests.

Combining CPA and M&A Attorney Expertise

In many cases, the most effective strategy involves leveraging the expertise of both a CPA and an M&A attorney.

• Collaborative Approach: A collaborative approach between CPAs and M&A attorneys can yield the best outcomes. For example, while the CPA is conducting financial due diligence, the M&A attorney can simultaneously assess legal risks. This dual approach allows you to make informed decisions based on both financial and legal perspectives.

• Integrated Services for Business Transactions: When engaging professionals, consider firms that offer integrated services. Some accounting firms have in-house legal experts, or vice versa, which can streamline communication and enhance efficiency during the transaction process.

• Example of Synergy: If a healthcare company is engaging in a merger, having both a CPA and an M&A attorney who specialize in healthcare can provide a comprehensive analysis of both financial and regulatory compliance issues, ensuring that all bases are covered.

Best Practices for Engaging a CPA and M&A Attorney

To make the most out of your engagement with CPAs and M&A attorneys, consider the following best practices:

• Clarify Roles and Responsibilities: Clearly outline the roles and responsibilities of each professional at the outset. This can prevent overlaps and ensure that all aspects of the transaction are covered.

• Communicate Regularly: Maintain open lines of communication between your CPA and M&A attorney. Regular updates can keep everyone on the same page and facilitate a smoother transaction process.

• Utilize Their Networks: Both CPAs and M&A attorneys typically have extensive professional networks. Don’t hesitate to ask for referrals to other specialists, such as business brokers or valuation experts, who may assist in your transaction.

• Consider Their Experience: When selecting a CPA or M&A attorney, consider their experience within your industry. Professionals familiar with the specific nuances of your sector can provide tailored advice that aligns with your business’s unique circumstances.

Conclusion

Deciding whether to involve a CPA or an M&A attorney—and knowing when to involve each—can significantly impact the outcome of business transactions. CPAs provide essential financial insights and ensure that the financial aspects of a transaction align with your goals, while M&A attorneys focus on the legal framework necessary to protect your interests.

Involving both professionals in a timely and coordinated manner will equip you with the knowledge and support needed to navigate the complexities of buying or selling a business successfully. As you embark on your transaction journey, remember to evaluate the specific needs of your situation and engage the right professionals to make well-informed decisions that will shape your business’s future.

If you’re considering buying or selling a business, contact us today at Tower Business Brokers to explore our services and to get started on the right path to success.