Is an accountant really required?? What is their actual role?

January 22, 2023

by a searcher from Indian School of Business in Raleigh, NC, USA

Hi everyone, I am a first time, self funded searcher in the process of getting my first LoI signed, and curious about the role of an accountant. If one has a basic understanding of finance/accounting and feels comfortable doing a crude/rudimentary proof-of cash, along with hiring a firm to do QofE, do you even need a separate accountant at all?

My plan is to work with the best lenders and lawyers that I can, and to pony up for QofE, but I am unable to see what incremental value an accountant would bring. Also I've had terrible experiences with accountants in the past, and frankly it seems like they might be a drag on the forward momentum of the deal.

I would love to hear examples of how accountants add value and what else I might be missing here? And if indeed they are really required, what qualities should one look for when retaining an accountant?

Reply by a searcher
from London Metropolitan University in Kuala Lumpur, Federal Territory of Kuala Lumpur, Malaysia

The more complex the business the more useful an accountant could be to you. An accountant can assess the appropriateness of certain accounting policies used in the preparation of those financial statements. You should be aware that there are so many ways to be creative with these statements especially in accrual accounting. A good accountant can help identify these issues particularly when you are relying on them to make financial projections based on historicals. Who is helping you with the prep of QOE report ? An accountant is usually hired to prepare the QOE report. Having said that, just like in any profession the quality of an accountant varies from person to person although going to a well established mid sized firm might ensure some level of quality control. As always it’s best to get some recommendations on accountants who have extensive experience and knowledge in M&A work in the small and mid-market sector.

Reply by a searcher
from Vanderbilt University in St. Petersburg, FL, USA

I think they are most useful when financials are complex / lumpy - which quality self funded search deals are often not (certainly exceptions). If you have a solid understanding of accounting / their revenue recognition, and the financials / operations are simple, stable, and relatively clean, a 3rd party QofE may be more of a formality. However, it's possible they uncover something they you may not, or have seen other deals in the same industry that you may be able to pick their brain on. They can also help with leverage when setting a normal working capital peg, or asking for a purchase price adjustment if an unfavorable ebitda adjustment is uncovered. Overall, if it's a deal >$750k of ebitda, it's probably worth spending the extra $20k in deal fees for a 3rd party QofE. You can also phase the QofE to avoid large dead deal fees. If it's a smaller simple deal, I'd just do everything yourself.

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