CPAs lose clients money by missing company buyouts

How many times has this happened to you? Your client calls in February to tell you he has already signed a letter of intent to sell his business. A buyer approached him the previous fall and your name didn't come up at the time. Why? Because a buyout offer sounded like a legal matter to your client so he only called his attorney. Meanwhile, the price has already been set and the working capital adjustment and the earnout both have a shape. Over the next 90 days, you will answer a few hundred questions from people you have never met, on deadlines you did not set, about a company you understand better than any of the others do. Most of those answers are worth real money to your client. Unfortunately, very little of that value will reach him. Outside of your client, nobody knows more about how your client makes money or why its numbers look the way they do than you. Buyers cannot purchase this kind of expertise. They can hire the best diligence firm in the country, but reconstruction has a ceiling because most of what you know was never written down. Every other input can be bought. Yours took 11 years, and no budget compresses that. Say your client is a $25 million revenue distributor with $3 million of earnings before interest, taxes, depreciation, and amortization, known as EBITDA, and the buyer is working from a 6x multiple. The sell-side add-back schedule claims $400,000, including $250,000 of above-market owner compensation, a $100,000 legal settlement, and $50,000 of contract consulting labeled one-time. Nobody asks you about the consulting. You would have flagged it because you have booked it 3 years running and it is a normal-course operating expense. The buyer rejects it. Adjusted EBITDA settles at $3.35 million. But when the numbers are run again with you involved this time, the schedule claims $350,000 and lands at the same $3.35 million. Same economics. Different diligence history. If a weak adjustment costs even a quarter turn, $3.35 million moves from $20.1 million of enterprise value at 6x to roughly $19.26 million at 5.75x. About $840,000 of enterprise value was put at risk over a $50,000 adjustment that never needed defending. Here is what this means for you: Your clients are leaving real money on the table simply because you are not at the table when the letter of intent is drafted. Make it clear to your business clients as soon as their company is in play what you can do and where you need to consult a specialist. Do not wait until several months into diligence. Good, proactive accountants do not get caught off guard when a client receives a buyout offer. They are ready for it. You can be too.