In this series, Inside the Deal: Insights From Business Acquisition Pros, we are breaking down the roles of the key players in a small business acquisition. In Part 1, we explored the business broker, the bridge between buyer and seller. In Part 2, we looked at the attorney and the importance of having legal expertise that fits small business M&A transactions. In Part 3, we focused on the financial due diligence professional and how they uncover the true financial picture behind a deal.
In this fourth installment, we turn to the CPA. While brokers and attorneys help you get to the closing table, the CPA is often the one who helps you succeed after the ink is dry. From structuring the entity, to allocating the purchase price, to setting up clean books on day one, the CPA makes sure the financial side of the deal is built on solid ground. Too often, buyers hire a CPA who mainly does personal taxes or general accounting and does not have experience with acquisitions. That can lead to missed opportunities for tax savings, messy post-closing books, or worse, costly mistakes that only show up later.
For this conversation, I sat down with Yehuda Rom of Bernath and Rosenberg PC, a senior tax manager who helps businesses with tax structuring, compliance, and reporting. I asked him the questions I hear most often from buyers who want to make sure they are set up for success after closing.
The Interview
Jerry: Can you explain the difference between an asset purchase and a stock purchase, and why most SMB buyers end up doing asset deals?
Yehuda: In an asset purchase, the buyer sets up a new entity and purchases selected assets from the seller such as equipment, customer lists, goodwill, and sometimes inventory or real estate. The buyer does not automatically take on the seller’s debts or liabilities unless those are part of the negotiated deal. This makes asset sales cleaner and more common in small business acquisitions.
In a stock purchase, the buyer steps into the seller’s shoes by buying the actual company stock or membership interests. The entity continues unchanged, which means all assets and all liabilities carry forward. Stock deals are sometimes necessary for businesses that rely heavily on contracts, licenses, or debt instruments that cannot be transferred. But unless there is a specific reason, asset deals usually make more sense for SMB buyers.
Jerry: After an asset purchase, what entity should a buyer use, and when do tax elections come into play?
Yehuda: The safest move is to form an LLC to make the acquisition. From there, you can elect to be treated as an S Corp or C Corp for tax purposes, depending on your situation. That decision can be made after closing, once you have a clearer picture of compensation, payroll, and profit levels. This approach gives you flexibility without locking you into a structure that may not be ideal down the road.
Jerry: Why does purchase price allocation matter so much, and how should a buyer handle it?
Yehuda: Allocation is how the total purchase price gets divided across the different assets you are buying. The IRS requires both buyer and seller to file the same allocation on Form 8594, so it is not just paperwork, it directly affects your taxes. For the buyer, allocating more to equipment, furniture, and other depreciable assets means you can write those costs off faster, which lowers your taxes in the early years. Allocating more to goodwill stretches deductions out over a longer period. Because it impacts both sides, allocation needs to be negotiated carefully and documented properly.
Jerry: What actually drives allocation? Can the buyer and seller just agree on it however they want, or does an appraisal control the outcome?
Yehuda: Allocation is ultimately a negotiation between buyer and seller, but it cannot be purely arbitrary. The IRS expects it to be reasonable and consistent with the facts. An appraisal of fixed assets or goodwill carries a lot of weight, and lenders often require one, but the buyer and seller still have some room to shape the numbers within reason. The goal is to strike a balance that both sides can live with and that can be defended if the IRS comes knocking. If the allocation is unrealistic, you risk an audit or disputes later. That is why buyers should involve their CPA early to help guide the discussion.
Jerry: How should the buyer and seller separate their books after closing?
Yehuda: In an asset deal you start with a brand-new set of books. The seller’s records are there for diligence, but they do not carry forward. Buyers should also use the results of diligence to set up their new books in a way that gives them and their team a clear picture of the company’s product or service lines, profitability, and margins. Many small business owners underestimate how important clean books and records are. Financials are more than numbers, they tell the story of the business at any given point in time. Getting this right from the start gives you visibility and control as a new owner.
Jerry: What systems or processes should go live right after closing?
Yehuda: Day one is about infrastructure. Get your accounting software set up with a proper chart of accounts. Turn on payroll, invoicing, and bill pay processes immediately. Review your first month’s balance sheet to make sure items are hitting the right accounts. Register for sales tax and payroll taxes right away. And keep the seller available for a short transition period so you are not guessing when questions come up.
Jerry: How should the first year’s financial reporting be handled if ownership changes mid-year?
Yehuda: In an asset deal, it is simple. You start new books from the day you close, so you do not have to split the year. In a stock deal, the company continues, so you must have a hard cutoff date in the books that separates pre- and post-closing activity.
Jerry: What are the most common compliance mistakes you see buyers make after an acquisition?
Yehuda: Payroll is a big one. Buyers sometimes mishandle how employees roll over into the new entity, which can affect benefits or payroll tax limits. Sales tax is another. The books need to tie directly to point-of-sale or ecommerce data. And finally, some buyers try to overhaul systems too quickly. It is usually smarter to stabilize the business through the first reporting year, then make changes once you fully understand how everything works.
Jerry: How should buyers plan for estimated taxes and cash flow in the first year?
Yehuda: Be cautious and keep a buffer. Hold back enough working capital until you understand the sales cycle, especially if the business is seasonal. Set aside money for taxes before taking distributions, and review your numbers quarterly with your CPA so you are not caught off guard. The first year is about learning the rhythm of the business and building financial discipline. Identify the tax types, when they are due, and if they are paid on the business or individual level. An election is often recommended for the business to pay the state income taxes.
Jerry: What role do depreciation and Section 179 play after an asset purchase?
Yehuda: One of the big tax advantages of an asset deal is a new depreciation basis. That means you can take bonus depreciation or Section 179 deductions on many of the assets you just bought. It can give you a big tax break in year one, which helps with cash flow. The flip side is that those deductions taper off later, so you need a plan for when the tax bill catches up. Talk through this with your CPA to make sure your strategy fits your long-term goals.
Closing Thoughts
A CPA’s role in an acquisition is more than just handling tax returns. They help structure the deal, negotiate and defend purchase price allocation, and set up clean books that give the new owner insight into profitability and performance. Just as important, they keep you compliant and disciplined in your first year of ownership. Get this part right and you not only reduce risk, you give yourself a financial foundation to actually grow the business you just bought.
Stay tuned for the next installment in the Inside the Deal series, where I will be speaking with an insurance advisor about how buyers can protect their new investment and avoid surprises with coverage and premiums.
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About the Experts
For over 35 years, Bernath and Rosenberg PC has helped business owners & families answer all the financial questions they face each day. Contact Yehuda at [email protected]
About the Author
Since 2018, Jerry Freedman, founder of Freedom Business Financing, has helped entrepreneurs across the country acquire businesses and secure owner-occupied commercial real estate through SBA 7(a) and 504 loans. Drawing on his background as an accountant, auditor, and CFO, and a track record of closing deals across multiple industries, Jerry is recognized for guiding buyers with clarity and integrity from LOI to closing. Contact Jerry by visiting freedombf.com.