When acquiring an SME, one spontaneously thinks of the notary or lawyer for contracts, and the bank for financing. The CPA often arrives late, sometimes only to produce the first financial statements after closing. This is a costly mistake: the decisions that have the most impact on price and taxes are made before the letter of intent is signed.

This guide explains what a CPA does at each stage of an acquisition, from both the buyer's and the seller's perspective, and how to choose the right one for your needs.

Summary answer: in an acquisition, the CPA verifies that the price is based on reliable figures, designs the tax structure of the purchase, prepares the financial setup and the forecasts required by the bank, leads financial and tax due diligence, and helps the lawyer or notary draft the financial clauses of the agreement. They then prepare the closing statements and tax elections, and assist with integration. To get the most out of them, hire them before signing the letter of intent.

Which CPA, and for whom?

Both the buyer and the seller must have their own CPA. The company's longtime accountant knows the figures well, but they represent the seller: they cannot independently advise the buyer on price or risks.

Depending on the size and complexity of the transaction, several profiles may be involved:

• the buyer's CPA, who coordinates the financial and tax aspects of the purchase;

• a tax specialist, for more complex structures (holding company, merger, trust, family transfer);

• a business valuator (CBV), when a formal valuation is necessary (family transfer, litigation, lender requirement, significant transaction);

• a firm specializing in transactions, for a quality of earnings report on larger acquisitions.

For an SME of a few million dollars, a single CPA experienced in transactions can often cover the essentials, calling on a tax specialist as needed. See also List of the role of specialists at each stage of the transaction.

Step 1: Before the offer, validate the price

Before making an offer, the buyer's CPA analyzes the financial statements provided by the seller and answers three questions:

• Is the profit real and sustainable? They normalize EBITDA by adding or removing personal and non-recurring items, and by providing for a market salary for the manager.

• Is the asking price consistent? They compare the implicit multiple to the multiples observed in the sector.

• Can the company repay the acquisition debt? They calculate free cash flow after taxes and maintenance capital expenditures, and compare it to the projected debt service.

Example: a buyer considers purchasing an IT services company in Sherbrooke, listed at $1,400,000 based on an EBITDA of $350,000. Within a week, their CPA notes that the owner only paid themselves a salary of $40,000 for a position worth $110,000. The normalized EBITDA is therefore approximately $280,000. At the same multiple, the offer drops to approximately $1,120,000. The buyer makes their offer with full knowledge of the facts, instead of discovering the discrepancy during due diligence, after having incurred costs.

To perform an initial calculation yourself, see the EBITDA calculator and Business sales multiples in Quebec: guide by industry and size.

Step 2: Design the structure and financial setup

The tax structure

The CPA recommends the most advantageous purchase structure:

• share purchase or asset purchase, measuring the tax effect for both parties (capital gains exemption for the seller, depreciation deductions for the buyer);

• personal purchase or via a holding company, calculating the pre-tax profits required to repay the debt in each case;

• merger after acquisition, to make interest deductible against operating profits.

See Share sale or asset sale? The pros and cons and Financing the purchase of an SME in Quebec.

The financial setup and the banking file

The lender will generally require three to five-year financial forecasts, a cash budget, and a demonstration of repayment capacity. The CPA prepares these, or reviews them if the buyer prepared them themselves, and helps balance the sources of funding: bank loan, vendor take-back, down payment, and sometimes subordinate financing. A bank that receives a coherent file, prepared by a CPA, generally responds faster and asks fewer questions.

Step 3: The letter of intent

The letter of intent sets the broad outlines of the transaction. The CPA ensures it contains the financial elements that will be difficult to negotiate later:

• the structure (shares or assets) and the buyer (individual or corporation to be incorporated);

• the principle of a "cash-free, debt-free" transaction and a working capital target;

• the terms of the vendor take-back, if any;

• the allocation of the price among assets, in an asset purchase;

• the conditions of a possible earn-out and how it is to be calculated.

TRNSFR offers a template for a letter of intent that can serve as a starting point.

Step 4: Financial and tax due diligence

This is the core of the buyer's CPA's work. They specifically verify:

• the consistency between financial statements, tax returns, GST/QST returns, and payroll records;

• the reality of revenues, through proof of cash and analysis by client;

• the detailed normalization of EBITDA, supported by documentation;

• the normal working capital and the list of debts and similar items;

• tax compliance: income taxes, sales taxes, source deductions, contributions, ongoing audits;

• off-balance sheet commitments: leases, guarantees, collateral.

With the seller's authorization, the CPA consults the company's tax records directly with Revenu Québec and the Canada Revenue Agency, rather than relying solely on the documents provided. Each important finding translates into a price adjustment, a representation and warranty from the seller, a holdback, or a closing condition. The complete method is presented in Financial statement analysis: the keys to a successful purchase and the due diligence checklist.

Step 5: The purchase agreement

The lawyer or notary drafts the agreement, but many clauses are accounting issues first. The CPA defines them with them:

• the definition of working capital: which accounts are included, according to which accounting methods, and how the target was calculated;

• the definition of debt: accrued vacation, bonuses, accrued taxes, customer deposits, lease agreements;

• the price adjustment mechanism: who prepares the closing statements, within what timeframe, and how to resolve a disagreement;

• the earn-out: the metric used (revenue, gross margin, EBITDA), the applicable accounting rules, and which expenses can or cannot be deducted;

• the allocation of the price, in an asset purchase, among inventory, equipment, intangibles, and goodwill.

A vague definition of EBITDA in an earn-out clause is one of the most frequent sources of litigation after a transaction. See Everything you need to know about earn-outs.

Step 6: Closing

At closing and in the following weeks, the CPA:

• prepares or reviews the closing statements and calculates the price adjustment;

• in an asset purchase, prepares the election that allows, when conditions are met, not to pay GST and QST on the purchase of all or substantially all of the assets necessary for operations (form FP-2044 from Revenu Québec, GST44 for the CRA);

• in a share purchase, anticipates the consequences of the change of control, including the deemed year-end of the purchased company and the tax returns it requires;

• sets up the new owner's accounting: chart of accounts, bank access, payroll, reports for the lender.

Example: when purchasing the assets of a retail business in Rimouski for $800,000, the buyer and the seller, both registered for GST and QST, make the election for the purchase of a business. The buyer does not have to pay approximately $120,000 in GST and QST at closing, and then wait to recover them in the form of credits and refunds. That is cash they do not have to borrow.

Step 7: After closing

The CPA's role does not end at the signature:

• produce the first financial statements and reports required by the lender, including the calculation of financial ratios;

• carry out the merger of the holding company and the purchased company, if applicable;

• calculate the earn-out at each deadline, according to the agreement definitions;

• prepare indemnity claims if an undisclosed liability appears;

• implement management tools that the new owner did not have: budget, cash flow tracking, key performance indicators.

For integration challenges, see Challenges and best practices for post-acquisition integration.

And on the seller's side?

The seller's CPA plays a symmetrical role, and they benefit from starting 12 to 24 months before the sale:

• produce reliable financial statements and normalized results that will withstand the buyer's due diligence;

• ensure that the shares are eligible for the lifetime capital gains exemption, notably by removing investments from the company that are not used for operations;

• compare the net proceeds of a share sale and an asset sale, after taxes;

• plan the taxation of a vendor take-back, including the capital gains reserve;

• answer the buyer's questions during due diligence and review the closing statements they prepare.

At TRNSFR, companies wishing to obtain platform certification undergo a summary review of their financial data by Canopée CPA inc., a partner of TRNSFR. This verification confirms that the declared figures exist and that the documents are in order. It is not an audit and does not replace the buyer's due diligence. See Certifications and verifications and The ultimate guide to selling a business.

How to choose your CPA for an acquisition

Ask these questions before hiring them:

• How many SME purchase or sale transactions have you supported in recent years?

• Are you familiar with the industry of the target company?

• Who on your team will do the due diligence work, and who will do the tax work?

• Do you have a connection with the seller or the target company?

• How do you bill: fixed fee per stage, hourly rate, cap?

• Can you work within the deadlines of the exclusivity period?

Get the scope of the engagement specified in writing. A "review of financial statements" and a full financial due diligence have neither the same content nor the same price.

The most frequent pitfalls

• Hiring the CPA after the letter of intent. The structure, price, and key definitions are then already set.

• Using the seller's CPA. They know the numbers, but they cannot defend your interests.

• Confusing a compilation and an audit. Financial statements compiled by a CPA have not been audited.

• Letting the lawyer define working capital or EBITDA alone. These are accounting definitions before being legal clauses.

• Forgetting the GST/QST election in an asset purchase. This error can cost tens of thousands of dollars in cash flow, or even lead to an assessment.

• Reducing the scope of the mandate to save money. A few thousand dollars in fees pales in comparison to a price gap that often runs into the hundreds of thousands.

Checklist: The CPA in your acquisition

☐ CPA independent of the seller engaged before the letter of intent

☐ Scope of mandate and fees confirmed in writing

☐ Normalized EBITDA and price validated before the offer

☐ Tax structure chosen (shares or assets, personal or holding company)

☐ Financial forecasts and bank file prepared

☐ Financial elements integrated into the letter of intent

☐ Financial and tax due diligence performed

☐ Working capital, debt, and earn-out definitions drafted with the lawyer or notary

☐ Closing statements and price adjustment prepared

☐ Closing tax elections made (GST/QST, deemed year-end)

☐ Accounting and lender reporting set up

Sources

• Revenu Québec, FP-2044 – Election for the Acquisition of a Business or Part of a Business

• Revenu Québec, Sale of a business (GST/HST and QST)

• Canada Revenue Agency, GST44 – Election Concerning the Acquisition of a Business or Part of a Business

• BDC, How to conduct due diligence when buying a business

• TRNSFR, Certifications and verifications

This article provides general information and does not replace accounting, tax, or legal advice tailored to your situation.