Question on Quickbooks

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April 30, 2024

by a searcher from Swarthmore College in 120 Riverside Blvd, New York, NY 10069, USA

Hello! I have a very tactical question for the group. I am currently approaching the end of an acquisition process. We are about to begin legal due diligence. We're likely going to be structuring the deal as a stock purchase (using an F Reorg to get a step up in asset value). The seller currently maintains his books in QuickBooks. The books are a little messy today. There are expense categories reflecting expenses that the business incurred historically but will not have in the future. Also, there are a few equity accounts for assets that are no longer associated with the business.

Is it standard to take over a seller's QuickBooks account or start a new QuickBooks account from scratch?

In my mind, the latter seems cleaner. However, the former would save us a lot of time as we wouldn't have to set everything up from scratch and transfer historical data into the platform. I didn't know if there was a "best practice" here.

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Reply by a searcher
from University of Tennessee in Nashville, TN, USA
The structure of the deal answers the question for you. You ARE taking over the Seller's QB because it is a stock sale. The only thing that is transferring at close is the ownership rights to the stock of the company. The name, EIN, contracts, etc. of the business all remain intact and the financials should too. Cleaning up the Chart of Accounts and making appropriate adjusting entries can be backdated to the day of closing in QB.

Issues surrounding adjusting entries should be addressed within the first month post-close and most will hopefully be identified during the diligence period. QB allows you to switch between Cash and Accrual presentation but you did not identify this as an issue pertinent to you. If it is, this article provides a general overview on how to and factors to consider https://www.paychex.com/articles/finance/cash-to-accrual-conversion.

Congratulations and good luck!
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Reply by a professional
from Columbia University in New York, NY, USA
^redacted‌ We are working with clients who are dealing with similar situation. A few factors would determine the decision. To me, Cash vs Accrual basis is one of the most important factor that would influence the decision. Because if the current system is cash basis and if you need to shift to accrual basis (may be to allign with your investor's MIS or other needs), a question that would arise is how useful is the historical financial statement going to be (unless you make a lot of adjustments to it). In one client recently, we started clean with accrual basis in a new QB subscription. Happy to share about this experience. Just so that you know, we work with only domestic firms here in the U.S. Wishing you the best for success in your deal. Best, Sri
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