🏴‍☠️ Why your CPA might be accidentally sabotaging your exit

Hey, it’s Kinza.

In today’s issue.

1. Your CPA's job is minimizing taxes.

2. A buyer's job is maximizing returns.

3. These goals often conflict, read for more.

"Our books are clean. My CPA handles everything."

I hear this in literally every initial consultation. Then I look at their QuickBooks and immediately see the problem.

The books are perfect for taxes. Terrible for transactions.

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The Tax vs. Transaction Problem

Your CPA's job is to minimize your tax liability. A buyer's job is to maximize their return on investment. These goals often conflict, and that conflict can cost you serious money in valuation.

Last month, I reviewed books for a manufacturing company doing $8 million in revenue. Beautiful for tax purposes, disaster for due diligence.

What I found in 30 minutes:

• Equipment purchases expensed instead of capitalized (made cash flow look worse)

• Owner's Tesla lease in "vehicle expenses" (not business-related)

• Health insurance for owner's family in "employee benefits" (personal expense)

• $150,000 in "consulting fees" to owner's spouse (no documentation)

• Maintenance contracts scattered across 12 different expense categories

The result? Buyers couldn't analyze the business properly. What should have been straightforward turned into a valuation nightmare.

The Five Things That Kill Transactions

Problem #1: Personal Expenses as Business Costs Your CPA might be fine with running personal expenses through the business if they're "ordinary and necessary." Buyers aren't. They want to see what the business actually costs to operate.

Problem #2: Inconsistent Expense Categories Software subscriptions in "office supplies" one month, "technology" the next. Buyers can't analyze spending patterns when categories change constantly.

Problem #3: Tax-Motivated Timing Issues Accelerating expenses into December for tax benefits makes year-end financials look artificially low for buyers.

Problem #4: Vague Expense Descriptions "Professional services - $45,000" tells buyers nothing. Was it legal? Consulting? One-time or recurring?

Problem #5: Asset vs. Expense Confusion Small equipment purchases often get expensed for simplicity. But buyers want to see your actual asset base and replacement costs.

The Transaction Ready Chart of Accounts

Here's how we restructure books for exit readiness:

Revenue Categories:

• Product sales

• Service revenue

• Recurring revenue (subscriptions, contracts)

• One-time revenue

Operating Expense Categories:

• Sales and marketing

• Technology and software

• Professional services (legal, accounting, consulting)

• Facilities and utilities

• Insurance

• Equipment and maintenance

The Monthly Normalization Process

Starting now, track "normalized" earnings alongside your tax-optimized books:

1. Add back personal expenses

2. Add back one-time costs

3. Normalize owner compensation to market rates

4. Adjust for timing differences

This becomes your "seller's discretionary earnings" (what buyers actually care about).

The Two CPA Strategy

Many of our successful clients use two CPAs:

• Tax CPA: Minimizes tax liability

• Transaction CPA: Prepares buyer-ready financials

Yes, it costs more. But it can add hundreds of thousands to your valuation.

Your action items this week:

1. Review your chart of accounts with transaction readiness in mind

2. Calculate how much personal expenses run through the business

3. Identify one-time costs that skew your operating performance

4. Consider hiring a transaction-focused CPA for exit planning

5. Attend Pre-LOI Planning: The Million-Dollar Difference this Thursday to learn the right moves before you ever accept an offer.

Remember, clean books for taxes aren't the same as clean books for transactions. The difference can make or break your exit.

Need help preparing transaction-ready financials? Just hit reply.

See you next week!

-Kinza