I've been a CPA for nearly 20 years - serving private small business and real estate the entire time. I take the lessons learned in serving and now running a small business and share them here. For business owners, investors, and advisors looking to lower their cost of capital, subscribe for delivery straight to your inbox π Also on YouTube at PlugAccountingandTax!
How SMB and RE Buyers Use Accounting to Add Multiples to Exits
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Most buyers treat accounting as the cost of keeping score. You close on a business or a property, you hand the books to a bookkeeper, and you check back at tax time. The accounting department becomes a compliance expense. A necessary evil. Overhead. That framing costs you real money. Done right, the accounting function in a newly acquired business or property is one of the highest-ROI investments you'll make in the first year of ownership. It finds revenue you're entitled to but never billed. It sharpens the forecasts that drive every capital decision. It builds the financial record that gets you cheaper debt and a higher exit multiple. Here are four ways to turn the back office into a profit center, starting day one after closing. π° 1. Capture every re-billable dollarThis is the fastest payback of the four, and the most commonly botched. On the real estate side: if you bought a property with NNN or modified gross leases, your tenants owe you reimbursements for taxes, insurance, and CAM. Those reimbursements are only as good as the expense coding behind them. When the prior owner's bookkeeper coded a $14,000 parking lot repair to a generic "Repairs & Maintenance" account instead of a recoverable CAM line, that $14,000 never made it into the reconciliation. You ate it. Multiply that across a year of utilities, landscaping, snow removal, and insurance, and sloppy coding quietly converts recoverable expenses into owner losses. The fix: rebuild the chart of accounts within 30 days of closing so every expense account maps to a lease recovery category. Recoverable or not recoverable, decided at the account level, before the first invoice gets coded. On the operating business side: the same leak shows up as unbilled job costs. Materials, subcontractor charges, freight, permit fees, travel. If your system doesn't tag costs to jobs at the moment of entry, your project managers reconstruct billings from memory at month end. Memory bills less than systems do. And good luck quoting the next 10 jobs. π 2. Build a P&L that predicts instead of reportsThe seller's chart of accounts was built for the seller's tax return (maybe if even that). It was designed to satisfy a preparer, once a year, looking backward. You need something different: a P&L structured around the decisions you'll actually make. That means:
The payoff shows up in forecasting. A budget built on five fat expense categories is a guess. A budget built on a properly segmented P&L tells you, three months early, that insurance is running 18% over and payroll in one department is creeping. You fix problems when they're cheap. It also shows up at refinance and exit. Lenders and buyers price uncertainty. Clean, consistent, decision-grade financials shrink the uncertainty discount on both your interest rate and your multiple. π¦ 3. Put the balance sheet to workMost small business owners read the P&L and ignore the balance sheet. The balance sheet is where the capital lives. A sharp accounting function turns it into a deployment tool:
None of this requires a CFO. It requires an accounting function that closes the books monthly, reconciles everything, and reports on more than the P&L. π§Ύ 4. Get the purchase itself on the books correctlyThis one is acquisition-specific, and the window to do it right is short. When you buy a business or a property, how the purchase price lands on your books drives years of tax outcomes:
Six months after closing, reconstructing this detail is expensive and incomplete. π The first 90 daysIf you take one thing from this issue: the accounting decisions you make in the first 90 days of ownership compound for the entire hold period. The 90-day sequence:
Each item costs a few thousand dollars of accounting time. Each one returns multiples of that in recovered billings, tax savings, cheaper capital, or avoided surprises. The seller's books told you what the business was. Your books can drive what it becomes. π«‘ Reminder for anyone buying a business for the first time - get professional help. Bedrock QOE is a full service quality of earnings firm (that I am a small investor in). A QOE is a great option for a business purchase that's too small to require audits, but hairy enough to need a second set of eyes. Will McCurdy, our CEO, has big firm chops and brings that to the small and middle market. Group Chat Worthy Posts π₯π²
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The Plug [Newsletter]
I've been a CPA for nearly 20 years - serving private small business and real estate the entire time. I take the lessons learned in serving and now running a small business and share them here. For business owners, investors, and advisors looking to lower their cost of capital, subscribe for delivery straight to your inbox π Also on YouTube at PlugAccountingandTax!
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