CASE STUDY

ACCOUNTING PRINCIPLES AS THE QUARTERBACK:

Leading the Financial Leg of the Stool

When following the Value Acceleration tax, consulting, and advisory services. The target
market primarily consists of privately held, owner-
Methodology™, a business owner, along with operated businesses in sectors such as agriculture,
the guidance of their advisory team and their manufacturing, construction, healthcare, and
Certified Exit Planning Advisor (CEPA®), are professional services.
called on to align three key goals: business, Sean has had experience in various advisory fields,
personal, and financial. This is called the Three including audit, forensic accounting, business
valuation, and now mergers and acquisitions (M&A).
Legs of the Stool Approach, and is critically
important in not only enhancing value for the “I have a holistic view of what goes on across
business, but also for empowering the owner to multiple industries, and my goal is to find
commonalities amongst size, location, and more,”
have a satisfying life post-exit. Sean says. “If you’re a manufacturer in Arkansas
While it may seem obvious, the financial leg that’s doing $10 million in sales, and if you’re
of the stool requires important focus, which is $100 million retailer in Idaho, how do we find
something that an accountant and CEPA like commonalities to speak to? We focus less on what’s
Sean Kennedy can specialize in. Sean works at unique and more on what’s consistent, because
Adams Brown Strategic Allies and CPAs, a firm that’s the key to exit planning. Your value drivers
based in the Midwest. The firm is known for its are going to be the same, but how they are applied
comprehensive range of services, including audit, is different.”

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FINDING AN EVEN KEEL “The accounting wasn’t bad. It wasn’t missing
details,” he says. “But the company had never
Sean says that all three legs of the stool in the had a controller or a CFO. The owner had been
concept are equally important, but he worries doing a lot of the accounting work himself. He
that the financial leg might not receive as much didn’t know where to look for the discrepancies,
attention or might not have a specific advisor and more importantly, he didn’t have the time
focused in this area on the owner’s team. because he still had a business to run.”
Despite this fact, it is still critically important.
According to Sean, it wasn’t about the business.
“It’s the foundation work,” Sean says. “People It was simply about the books. “The deal got
see it as a cost, but the cost of not addressing put on hold, not because the business wasn’t
this leg of the stool is significantly greater awesome, but because the financials presented
than the cost it takes to make sure that this weren’t providing comfort,” he says. “If the buyer
piece of the stool is properly aligned.” couldn’t get comfort over the numbers, they
couldn’t get comfort over the opportunity.”
This work is the accounting of the business, including
keeping books and records accurate, ready, and Sean and company stepped in, re-establishing the
prepared in a way structurally where the seller can accounting, putting together and explaining the
answer any questions that the buyer may have. variances, identifying the gaps, and preventing the
deal from stalling any longer than it already had been.
“If you’re selling a home, it’s the foundation. Is it going
This was crucial, as the longer the delay, the more
to create as much value with your sales price versus
the owner would lose value on investment income.
putting in a new kitchen or a new patio or deck?” Sean
says. “Probably not, but you can’t sell the house with While going through the financials, Sean discovered
the new kitchen if you have a cracked foundation.” that the client had never been through an annual
audit. They had never gone through an annual oral
review or any sort of third-party, CPA-prepared
DUE DILIGENCE SAVES THE DAY financials. The buyer was looking for generally
In 2022, Sean and his group were approached by accepted accounting principles (GAAP) or, at the
a company under letter of intent. Over the past very least, they wanted accrual basis financials.
few years, the client had experienced a steady
“This business, like many, was trying to report their
and impressive growth year over year. According
financials in a way to minimize their tax liability,” Sean
to Sean they had the following key factors:
says. “Which is great, until you want to sell
• The client was in a highly valued industry your business.”
• Their business was performing well After sifting through and looking at the expenses
• They had the right operations in place that would be capitalized under GAAP (i.e. not
treated as an expense), Sean and his company were
• They had key management in place
able to identify and substantiate approximately
The owner of the client company was also planning $250,000 of addbacks to the EBITDA number,
on staying on board and continuing to be a minority resulting in an increased sales price.
shareholder of the group, allowing the company to
retain a key player in its growth even after exit. “When we saw that sales price was structured as
a multiple of adjusted EBITDA, we told our client,
So, why did Sean and company get involved? ’we are going look under every rock we can find
concerning your financial information in an attempt
The company prepared the financials for the
to find as many addbacks that we can.’ I can’t
buyer to look at and formulate and offer from.
disclose how much we were able to substantiate,
Unfortunately, the reported figures provided had
but let’s say the seller generated a pretty good
changed, and the buyer hit pause on the whole deal.
ROI given the value created from our efforts.”

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EVERY DETAIL COUNTS "The goal is for the deal
to be done fairly, closed,
At the time, supply chain issues were still an
issue in 2022. With excess inventory being a
rarity, Sean and company made a huge discovery
with the group only 48 hours before close.
and all parties are happy
with the outcome.”
“The company was in the service space, and they
would put inventory from their warehouse into
their vehicles. They did not have a virtual location
for the inventory on their vehicles. They would go
service a customer and would use the parts there.
If they didn’t use them, the parts would stay on the
vehicles” he recalls. “There was inventory that was
not on the balance sheet, just sitting there on the
vehicles. This was huge finding because the terms
of the deal allowed for the seller to receive additional
proceeds for the sale of any excess inventory.”

They called on the owner to count the entire

inventory on the vehicles, resulting in approximately
$400,000 of excess inventory. Not a bad
“bonus” to receive at the eleventh hour.

“We didn’t do anything to improve the business.

We didn’t add any capital, we didn’t add any
systems. We didn’t do anything other than apply
accounting principles.” Sean says. “And yet we
used our knowledge of accounting and the terms
& conditions of the sale to create value that far
exceeded the fees we were paid for our services.

Also key to the process? Transparency with all

parties involved, buyers and attorneys included.

“We told the buyer, ‘we are going to be aggressive

with our review of the Company’s books and records
and all we ask is that you give us the opportunity The buyer kept Sean and his team on board
to present and propose our findings.,’ and they after the closing to assist with additional
said, ‘Go for it, we would be doing the same thing transition work. Honest, standard accounting
if we were in your position. And they ended up due diligence made that positive relationship,
accepting most of our negotiations.’” Sean says. continued openness, and added value possible.
“It’s hard to say that would’ve been the case had we
not been upfront, transparent, and appreciative of “The important thing to learn is that traditionally
their willingness to work with us. Not against us. deals can feel adversarial. The buyers are bad and
the seller is good, or the seller is bad and the buyer
The attorneys also appreciated the back-and- is good. There is always us versus them,” Sean says.
forth questions, providing an open atmosphere “If that’s how you approach the deal, you’re going to
that also empowered the owner to focus on still fail. The goal for a sale is not for either party to get
operating the business until the point of sale. the best “deal” in terms of a sales price, or a purchase
They freed up time, knowledge, and added a price. The goal is for the deal to be done fairly,
significant amount of money to the sale. closed, and all parties are happy with the outcome.”

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216.712.4244
epiglobal@[Link]
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@beyondCEPA

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