Member of Russell Bedford International, a global network of independent professional service firms.
Member of Russell Bedford International, a global network of independent professional service firms.
If you’re a business owner considering a sale or acquisition, understanding the key differences between mergers and acquisitions is crucial. In this third installment of our series about mergers and acquisitions, Deanna Salo, Managing Principal at Cray Kaiser, breaks down these concepts in simple terms and shares essential advice for navigating the transition. Deanna offers insights that can help make your transaction smoother. She also highlights the critical role an accountant plays in guiding business owners through financial readiness, due diligence, and post-sale planning.
Transcript:
My name is Deanna Salo, and I’m the Managing Principal here at Cray Kaiser, Limited CPAs and Advisors.
There’s probably thousands of definitions on mergers and acquisitions if you Google it, and I think the best way that I like to quantify it is with a math problem. A merger is A plus B equals C. That’s where two joining companies come together and they decide to create something brand new. So C is the new company. An acquisition is a little bit different math problem. It’s A plus B equals A or B. And this is where somebody’s relayed the buyer and somebody’s the seller of the company. And whoever survives the acquisition is who absorbs the target. So, you know, I think in today’s environment, we really don’t see very many mergers going on anymore. They’re pretty much acquisitions where somebody at the end is absorbing the target or the selling company and they become part of the existing or the buyer’s company.
I think the best piece of advice I have actually given to most of my clients who have gone through the process of thinking about selling their business is keep your eyes on your business. This effort to sell your business, while it might only be 45 to 60 to 90 days, it may take much longer than that. Certainly the readiness of getting ready to sell your company is a long and can be a longer process, if you take your eyes off of the business, you may fall upon economic hardship. You may not be pressing all the different strategies that you have within the company. So keeping your eyes on the business to keep it running successfully while you’re taking a lot of energy and time to this acquisition sale process is really the best piece of advice. It’s easy to get rolled up in the acquisition process because it’s an exciting time. A lot of people ask in your questions about a lot of things but keeping your eyes on the business is probably the single best piece of advice that I have actually given clients and they look at me and they say oh yes we definitely need to keep our eyes on the business during this process.
In sharing the news with your organization, I would suggest a best practice is you start with your C-suite in terms of understanding what this process is going to be because many of the executive team will need to be a participant in the due diligence. So start small. What happens sometimes is the deals don’t go through. We actually had a client who went all the way up until a week or two. I think it was 10 days before the actual closing was to happen and the seller decided not to sell their business and they were wise to only really include the ownership team and some executive team members within the journey that got them even there. They did not tell the entire company. What happens oftentimes is there’s going to be little, mini tornadoes in your company of information being shared and so you could lose employees, you could lose customers, you could lose vendors if there would be a word on the street that you could be sold. So keeping the information, which is super hard to do because most owners are very excited with this new opportunity and they want to share it with everybody, that keeping the information to the tight group until such time as it’s appropriate to tell the rest of the organization about the great new news is a best practice. I think in smaller organizations where everybody knows everybody’s birth dates and anniversaries and they know when they’re feeling well and they know when they’re not feeling well it’s much more difficult to hold back the news when there’s an opportunity to acquire another business. I think as owners and businesses we have to let our employees know that we’re constantly looking to improve our organizations and we may be looking at acquiring another firm, another practice, another group of professionals. I think that’s a growth mindset and so if that’s part of the tenor of the company to tell the team that you’re looking to acquire other businesses, other practices, other specialists. I think when it does in fact happen, it’s an easier conversation because it’s already part of the strategic plan that’s been shared within your existing small organization that we’re constantly looking to buy and acquire other companies, other specialties. And then when it does happen, It’s not really new news, it’s just, oh, we have these new team members that are going to be coming to join us. And I think that’s really, if it can be set the course in your strategic plan, which you’re sharing with your existing smaller company, I think it becomes less of a hurdle once the target is identified and once the target is acquired and you’ve got new people joining the firm or your organization, it’s just an easier transition because everybody was already in the know that you are already out seeking this opportunity.
As the seller, when that needs to be announced to your team, when it is really time to tell your team, it’s a very delicate matter. And I think if ownership has been clear with their team that they are selling, that we are looking to connect ourselves with other resources so that we can deploy our services and goods at a much more efficient pace and have a lot more resources. And yes, I’m here to ensure that the transition is going to take place between where we’re at now and when we join the new company, giving them some conversations around it, meeting individually. Sometimes it takes meeting individually with people to let them have a surety that you will be with them throughout this next process is an important part of that conversation.
I think for a company who’s looking to sell, again, there’s a lot of what I call head and heart. Head knows that it’s time to sell, I’m ready, but the heart is my people, my clients, my customers, my vendors, all the people that got me to here, I need to make sure that they’re well taken care of. And if you start those conversations a little bit earlier on, meaning you’re not going to tell them you’re going to be getting that you’re going to be sold, but you’re letting them know that we need to be, we can be better and bigger and greater by aligning ourselves with another organization and start that in your own strategic plan that we may be acquired, we may merge into another company because I want all of us to have the benefit of being able to do bigger, better, bolder work going forward. I think that that’s an important message to give to your existing employees so that they know that they want to stay with you for that next great opportunity and put some really positive energy around it is an important part of transitioning your company from who you are to the next owner.
The role Cray Kaiser plays in a merger or acquisition process is really one of a consultant first. We really want to make sure that the client is ready for the transaction, that they’ve gotten their checks and balances with their financial warehouse, that they understand that the value is not going to be how much the seller needs to retire. It’s really providing them the consultancy piece, the reality check of what this next process is going to be. It’s kind of phase one. Phase two is really when we become the financial advisors and help them review the letter of intent before they sign it and sure it’s got all the right pieces that we believe are important. Certainly, we are not attorneys and we let legal counsel take care of the legalese of these letters of intent. And then we participate in the third phase, which is really the due diligence phase, supporting their internal accountants, controllers, CFOs and helping them provide the buyer with whatever information they need, making sure that the information is scrubbed in a great format so that the buyer has an ease of looking through it efficiently and with accuracy. And then lastly, we assist with the after-tax cash flow. We, you know, sometimes we start that at the beginning. Clients say, “Well, if I sell my company for X dollars, how much money am I actually going to be able to keep?” And we’ll help our clients provide those proformas, those projections of if I sell my company for $10 million, how much will I receive after tax? And what’s my actual cash flow? Which also helps the investment advisors understand how much money is that owner actually going to receive out of that 10 million when everything comes to close. So we are there from the beginning to help get them, get their mind and their mindset around the sale of their business. And we also help them through each of the phases as much or as little as they need us. And certainly in the life thereafter, many of our clients who have in fact sold their companies, we’re helping them in their next level of enterprise. Some of them become real estate enthusiasts and we help them with their accounting and tax on the real estate side. So we’re here to help clients throughout the entire cycle, life cycle of their existing business, and even in the life cycle after their business. All of this process, there’s lots of phases to this process, and at Cray Kaiser, you know, we’re here to help our clients, again, to and through their transactions at whatever point in their life cycle they’re at. And if you need any further assistance on that, please feel free to give us a call. Cray Kaiser is here for you during any part of this transaction.
In Cray Kaiser’s Employee Spotlight series, we highlight a member of the CK team. We couldn’t be prouder of the team we’ve grown and we’re excited for you to get to know them. This month we’re shining our spotlight on Helen Kubitschek.
At Cray Kaiser, no two days are the same for Helen, our Tax Administrator. She plays a vital role in keeping tax administration running smoothly, ensuring every process is seamless and efficient. As the tax season approaches, Helen diligently oversees the distribution and collection of engagement letters for our 2,000+ clients. Once tax season is in full swing, she takes charge of e-filing tax returns, managing critical deadlines, and providing support to her team on a variety of administrative tasks. Helen’s dedication keeps everything on track, ensuring our clients receive the exceptional service they deserve.
As one of the newest members of the Cray Kaiser team, Helen was immediately drawn to CK’s welcoming culture. The close-knit, collaborative atmosphere stood out, offering the perfect balance of teamwork and growth. For Helen, seeing how seamlessly the team works together—and how that dynamic fosters genuine, lasting relationships with clients—was truly inspiring. She was especially impressed by how comfortable and confident clients feel when partnering with the CK team, a testament to the trust and strong connections they’ve built.
So, it’s no surprise that when asked which of CK’s core values resonates with her the most, Helen answered without hesitation: “People”.
When asked, “What piece of advice would you give to someone new in the industry?” Helen emphasized the importance of keeping an open mind. “The accounting industry has so many different aspects to explore. My advice is to seek guidance, talk to seasoned professionals, and get a taste of everything. Focusing on one area too soon isn’t ideal, you don’t know what you’re going to love until you try it.” For Helen, curiosity and a willingness to learn are key. “The more you learn, the more valuable you become.”
Now, let’s shift gears with some lighter questions to get to know Helen a little better—straight from her own words!
How do you like to spend your weekends?
In my free time, I love being with family and friends, often enjoying a bit of cooking or hanging out with my Goldendoodle, Phoebe. I’m also a big fan of exploring new restaurants and catching musicals and plays. Recently, I had the chance to see Frozen—and it was absolutely incredible!
What motto do you live by?
“Mind over matter” is something my dad told me as a young child. So, when things get hard, that’s what sticks in my head. I say it out loud to get me through whatever I’m facing.
What was your favorite vacation?
Years ago, my friends and I took a girls’ trip to Clearwater Beach, Florida—right around the time Hulk Hogan’s reality TV show was being filmed there. As a fan of both Hulk Hogan and the show, I was thrilled at the possibility of spotting him in person. Our driver for the weekend happened to know where he lived, so naturally, we cruised by his house, hoping for a glimpse of the celebrity. Unfortunately, no luck.
Fast forward to our last night in town, we decided to visit one of Hulk Hogan’s favorite local spots. As we were sitting and chatting, my friend suddenly grabbed my arm, her face frozen in shock—Hulk Hogan had just walked in! We couldn’t believe it, and I knew I couldn’t let the moment pass without saying hello.
With a mix of excitement and nerves, I walked over and introduced myself. To my surprise, he was incredibly kind and personable. We chatted for a few minutes, and he even took a picture with me and hugged me before I rejoined my friends. It was such an unbelievable moment and made the trip one I’ll never forget!
And last, what’s on your music playlist?
I love a variety of music! 80’s, 90’s, classic rock, country… it depends on whatever I’m in the mood for!
MSA | Senior of Accounting Services
Technology is advancing at an exponential rate. To put this into perspective, it took 2.4 million years for our ancestors to discover and control fire for basic needs, yet only 66 years passed between the first airplane flight and having humans landing on the moon. Knowing this, if your accounting software looks and feels like it was designed in the early 2000s, it’s probably time for an upgrade. Here’s why:
These are just a few of the ways outdated accounting software can hold your business back from achieving growth and success. As you begin researching your next upgrade, you’ll likely discover even more areas for improvement. Now, let’s explore why modern accounting solutions are so effective.:
Upgrading to modern accounting software isn’t just about keeping up with the times. It’s about making your life easier, saving money, and setting your business up for long-term success.
Client Accounting Advisory Services (CAAS) at Cray Kaiser can help you modernize your accounting systems. We take the time to understand the story behind those numbers. Our goal isn’t to only provide data but to empower you with the knowledge and understanding needed to make confident, strategic decisions. With CK’s CAAS, you’ll have a trusted partner helping you navigate the transition to modern accounting software. You can learn more about our services by visiting our CAAS page.
In Cray Kaiser’s Employee Spotlight series, we highlight a member of the CK team. We couldn’t be prouder of the team we’ve grown and we’re excited for you to get to know them. This month we’re shining our spotlight on Emily Zeko
As a Senior Tax Accountant, Emily is a key player on the CK tax team. She spends her days preparing and reviewing tax returns, assisting with tax planning, and responding to federal and state tax notices. As a generalist, Emily has experience with a wide range of tax returns, from individuals to passthrough entities and corporations. While she’s well-versed in many areas, she has a growing passion for international tax and hopes to make it her area of expertise as she continues to gain experience.
Emily joined Cray Kaiser in October 2024, eager to grow her skills and strengthen her expertise across diverse clients. But what truly set CK apart for her was the welcoming, friendly atmosphere she experienced during her interview. “Everyone I met was incredibly kind, and the environment was so positive; it made me excited to be part of this team.”
When asked which of CK’s core values resonates with her most, Emily immediately chose Integrity. “In the tax profession, there are moments when we might feel pressure to make morally gray decisions to satisfy clients. I believe that maintaining a strong ethical code is essential in everything we do.”
For Emily, the most meaningful moments in her career come when she gets to meet clients face to face. “In tax preparation, it’s easy to get caught up in the numbers and forget that there are real people behind them. Meeting clients in person, hearing about their businesses, or even seeing their operations firsthand is always a powerful reminder of why our work matters.”
For anyone just starting in the accounting field, Emily offers this advice: Be kind to yourself when it comes to the CPA exam. “It’s completely normal to struggle with studying after a full day of work. I had to take time off to pass my exams, and that’s okay. Everyone’s journey is different. What matters is finding what works for you.”
Now, let’s get to know the lighter side of Emily – straight from her own words!
Do you have a special talent or hobby?
I love to sing! I was in choir up until college, and I miss it dearly. My forte (no pun intended) was blending and harmonizing.
What’s your favorite vacation spot?
Disney World in Florida. I’m very in touch with my inner child, and nothing beats the magical feeling of being there!
What’s on your music playlist?
I’m a diehard Swiftie! Taylor Swift’s music has a song for every mood. I also love current pop music, especially anything with influences from ’70s funk.
What’s the last book you read?
I’m currently reading Les Misérables. I love the musical and wanted to dive deeper into the original story. It’s been refreshing to read something older and so rich in history.
As we celebrate International Women’s Day, we take this opportunity to honor the incredible women of Cray Kaiser. Their dedication, expertise, and leadership drive our firm’s success and make a lasting impact on the accounting profession.
International Women’s Day has been observed since the early 1900s. It’s a day to recognize the social, economic, cultural, and political achievements of women worldwide and to advocate for gender equality.
We’re proud that women make up 54% of our team with 67% of the Firm being women-owned. Their contributions across accounting, tax, and advisory services bring diverse perspectives and innovative solutions to our clients every day.
International Women’s Day is a powerful reminder of the importance of gender equality and the need to continue fostering an environment where women can thrive and lead. At CK, we are committed to empowering women by providing opportunities for growth, mentorship, and leadership at every level.
Today, and every day, we celebrate the achievements and resilience of women around the world. Join us in recognizing the remarkable women who shape our industry and inspire future generations.
Senior Tax Accountant
Is your business fully leveraging available tax credits? The Returning Citizens Credit is a valuable incentive that could reduce your tax liability while supporting workforce reintegration for formerly incarcerated individuals.
The Returning Citizens Credit, initially introduced in Illinois in 2006, as the “ex-felon tax credit” is a tax benefit designed to encourage businesses to hire formerly incarcerated individuals. Originally businesses were eligible for a 5% tax credit on wages paid to eligible employees, with a cap of $1,500 per individual.
Beginning in 2025, the program was renamed the “Returning Citizens Credit” and expanded to provide a more substantial benefit: businesses can now receive a tax credit equal to 15% of wages paid to eligible employees, up to a maximum of $7,500 per individual per year. This adjustment aims to further incentivize employers to provide opportunities to those reentering society.
To qualify for the Returning Citizens Credit, an individual must meet the following criteria outlined in the Illinois credit code 5380.
The process of claiming the Returning Citizens Credit varies depending on your business’s structure. The credit is reported on the following forms:
When claiming the credit, a business will need to provide the following information for each qualifying returning citizen:
Once the credit is correctly calculated and the respective form is completed, it will be reflected on schedule K-1p for partners or shareholders, IL-1120 for C- Corporations and IL-1040 for individual tax returns.
Qualifying wages for the credit are those subject to unemployment tax under IRC Section 3306. Additionally, wages must be paid within one year of the employee’s hire date to qualify for the credit.
It’s important to note that you can only claim the wages paid during the tax year in which you are filing for the credit. If you claim the credit for multiple years, you’ll need to include the amount of the credit claimed in the previous years, as the maximum credit per returning citizen is capped.
The Returning Citizens Credit is a tool for businesses looking to reduce their tax burden while offering a second chance to those who have been incarcerated. By understanding the eligibility criteria, qualifying wages and the necessary steps to claim the credit, you can ensure that your business can take advantage of this opportunity. The qualified tax professionals at CK can help you navigate the process and optimize your business’s tax benefits. You can call us at 630-953-4900 or contact us here.
Tax season is upon us, and at Cray Kaiser, that means two things: extra efforts and the fiercest office rivalry this side of the accounting world. While our team spends their weekdays crunching numbers, lunchtime on Saturdays is reserved for a different kind of competition. Welcome to Season 3 of CK Nation – a high-stakes battle between Team Assurance and Team Tax, where spreadsheets take a backseat to sportsmanship (and sometimes sheer luck).
CK Nation isn’t just about bragging rights. Oh, no, it’s more than that. It’s about survival. When the calculators are put down and the coffee pots are refilled, our accountants, auditors, and tax professionals engage in epic lunchtime showdowns. Every Saturday, these two powerhouse teams face off in challenges designed to test their skill, precision, and ability to function on a diet of takeout and caffeine. Game on!
Will Team Assurance audit their past performances and give themselves a glowing review? Or will Team Tax claim the ultimate deduction, writing off their opponents’ chances entirely? No one knows for sure but with fierce competition, nonstop puns, and the ever-watchful eyes of our dynamic ref duo (one tall, one questionable, both equally ruthless), there’s no room for funny business. Every match is a battle for bragging rights!
Every year brings a fresh season of wild, heart-pounding challenges, but past competitions have included some true greats. There’s Cards, where players master the high-stakes art of flicking playing cards into a distant trash can. Top Gun takes paper airplane precision to legendary heights – so intense that even Maverick and Goose might think twice. And then there’s Field Goal, where the delicate craft of finger football meets tiny uprights and big bragging rights. Of course, we also honor the classics like Hot Potato, Chopsticks, and Bowling because some games never go out of style.
But here’s the twist: teams never know what game they’ll face next. Each challenge is kept top secret, adding to the suspense and strategy. Every Saturday brings a spectacular surprise, turning players into quick-thinking competitors ready to conquer whatever comes their way!
At stake? The illustrious, highly sought-after CK Cup. Forget championship rings or gold medals – this trophy represents the pinnacle of tax-season athleticism. Only one team will claim the honor of hoisting the CK Cup at season’s end. Will it be a meticulous strategist of Assurance or a tax-savvy tactician from Team Tax? The battle rages on.
One thing’s for sure: when April rolls around, there will be one winner and one office full of high fives and celebration, knowing we thrived through another tax season – not just with spreadsheets, but with a bit of fun along the way.
Stay tuned for more updates, and may the best team win!
CPA | CK Principal
The death of a spouse is a profoundly challenging time, both emotionally and financially. Amidst the grieving process, surviving spouses must also navigate a complex array of tax issues. Understanding these tax implications is crucial to ensuring compliance and optimizing financial outcomes. This article explores the key tax considerations for surviving spouses, including filing status, inherited basis adjustments, home sale exclusions, notifications to relevant agencies, estate tax considerations, and trust issues.
If you have a team of trusted advisors – accountants, attorneys, insurance, and/or financial professionals – these individuals are adept at advising clients during this trying time. They have experience in dealing with these difficult issues and can advise in a non-partial way. Let them help you as you grieve your loss.
Ideally, determining the key advisors should not be a difficult process. In some cases, prepared individuals may have created a crash card to assist their families upon their passing. The crash card may help you identify advisors and to know where important documents are stored.
It is imperative for the surviving spouse to notify the Social Security Administration (SSA) of the spouse’s death to adjust benefits accordingly. Usually, the funeral home will notify SSA, but to be safe, the surviving spouse should also contact SSA. Similarly, any payers of pensions or retirement plans must be informed to ensure the proper distribution of benefits and to avoid potential overpayments that would have to be repaid.
To prevent future complications, it is essential to change the title of jointly held assets to the survivor’s name alone. This includes real estate, vehicles, and financial accounts. It is also an opportunity to determine whether ownership should be held individually or in trust. Properly updating titles ensures clear ownership and facilitates future transactions.
Surviving spouses should also review and update their own beneficiary designations on life insurance policies, retirement accounts, and wills.
Many couples establish living trusts to manage their assets. Upon the death of one spouse, the trust may split into two separate trusts: one revocable and one irrevocable. The irrevocable trust typically requires a separate tax return. Understanding the terms of the trust and its tax implications is crucial for compliance and effective estate planning.
In the year of a spouse’s death, and provided the surviving spouse has not remarried, the surviving spouse has several filing status options. The option most often used is to file a joint tax return with the deceased spouse. This option is generally more favorable than filing as a single individual, as it allows for higher income thresholds and deductions. If the surviving spouse chooses not to file jointly, they may file as married filing separately or, if they qualify, as head of household.
If the surviving spouse has not remarried and has a dependent child, they may qualify as a “Qualifying Surviving Spouse” for up to two years after the year of the spouse’s death. This status offers benefits similar to those of filing jointly.
When a spouse passes away, the surviving spouse may receive an adjustment in basis for the inherited assets, which can significantly affect future capital gains taxes. The extent of this basis adjustment depends on how the title to the assets was held:
The rationale behind these basis adjustments is to align the tax basis of inherited assets with their current market value, thereby reducing the potential capital gains tax burden on the surviving spouse. This adjustment reflects the change in ownership and the economic reality that the surviving spouse is now the sole owner of the asset.
To establish the inherited basis, obtaining a qualified appraisal of the assets as of the date of death is often necessary. This appraisal serves as documentation for the basis and is crucial for accurately calculating capital gains or losses upon the future sale of the assets.
Surviving spouses may benefit from the home gain exclusion, which allows for the exclusion of up to $500,000 of gain from the sale of a primary residence, provided the sale occurs within two years of the spouse’s death, and the requirements for the exclusion were met prior to the death. This exclusion can be a valuable tool for minimizing taxes on the sale of a home, although in most cases, any gain within the two years is likely to be minimal because of the basis step-up provision. After the two-year period has elapsed, the exclusion drops to $250,000.
If the deceased spouse’s estate exceeds the federal estate tax exemption, an estate tax return may be required. Even if the estate is below the exemption threshold, filing an estate tax return can be beneficial to elect portability. Portability allows the surviving spouse to utilize the deceased spouse’s unused estate tax exemption, potentially reducing estate taxes upon the surviving spouse’s death. Not only federal estate tax laws should be considered, but state estate tax laws as well.
In addition to the primary tax considerations, surviving spouses must also be aware of how tax attributes are treated following the death of a spouse. Tax attributes include various tax-related characteristics such as net operating losses, capital loss carryovers, and passive activity losses. This can be complicated based on whether the attributes are related to a specific spouse or jointly.
The tax issues facing surviving spouses are multifaceted and require careful consideration. By understanding filing status options, inherited basis adjustments, home sale exclusions, and other critical tax matters, surviving spouses can navigate this challenging period with greater confidence and financial security.
Contact CK’s office at 630.953.4900 for professional tax assistance to ensure compliance and optimize financial outcomes during this difficult time. Our trusted team of advisors will be there to guide you every step of the way.
Senior Tax Accountant
If you’re running a small or medium-sized business, you know that cash flow is everything. Keeping up with payroll, replenishing inventory, and funding growth can feel like a never-ending balancing act. But what if there was a hidden way to free up cash?
Enter tax credits. These aren’t just numbers on a financial statement; they’re tools that can give your cash flow the boost it needs. Let’s explore how you can unlock these hidden advantages and give your cash flow a much-needed boost.
Unlike tax deductions, which only reduce taxable income, tax credits directly cut down your tax bill. That means more money stays in your business, strengthening your financial position and fueling growth. Here are some key credits to consider:
Why It’s a Win: Hiring new employees doesn’t just build your team, it can also boost your cash flow. The WOTC rewards businesses for hiring individuals from specific target groups, such as veterans, individuals from low-income areas, and long-term unemployment recipients.
How It Works: You may be able to claim a tax credit for a percentage of an employee’s wages during their first year on the job. This can help offset hiring costs while reducing your tax liability.
How to Qualify: Hire employees who meet WOTC eligibility, submit a certification request during the hiring process, and maintain precise hiring and detailed payroll records.
Why It’s a Win: Innovation pays off, literally. If your business is developing new products, improving processes, or advancing technology, you may qualify for the R&D tax credit.
How It Works: You can claim a percentage of qualifying R&D expenses, including any wages and supplies involved with the research. This directly reduces your tax bill, making it a valuable incentive for businesses pushing the envelope in their industry.
How to Qualify: Keep detailed records of your R&D activities, including project descriptions, expenses, and outcomes to support your claim.
Why It’s a Win: Startups and smaller businesses don’t have enough income to benefit from the R&D tax credit, but there’s a workaround. The payroll tax credit allows eligible businesses apply up to $250,000 of their R&D credit toward their payroll taxes instead.
How It Works: This option provides cash flow relief right away rather than waiting to offset future tax liability.
How to Qualify: Meet startup eligibility criteria (typically having less than $5 million in gross receipts) and ensure your R&D activities meet the requirements. Accurate documentation of expenses is key.
Why It’s a Win: Certain industries, such as renewable energy, manufacturing, and tech—benefit from specialized tax credits to encourage innovation and sustainability. These credits reward activities like energy efficiency improvements, eco-friendly initiatives, and technological advancements.
How They Work: Whether you are upgrading to energy-efficient equipment or investing in new technologies or adopting eco-friendly practices, these incentives help cut your tax bill and boost your cash flow.
How to Qualify: Research the credits available in your industry and ensure compliance with all relevant requirements to make the most of these opportunities.
Claiming tax credits is just the beginning. Once you secure them, they can be a powerful tool in your financial strategy. Use the extra cash inflow to invest in growth opportunities, pay down debt, or build a financial cushion for the future. By incorporating tax credits into your planning, you are setting your business up for stability and success.
Tax credits could be the key to unlocking new financial opportunities for your business. If you’re ready to explore which credits apply to you, Cray Kaiser is here to help. As experienced advisors, we specialize in helping businesses navigate the complexities of tax credits.
In this second installment of our series on navigating business mergers and acquisitions, Deanna Salo, Managing Principal at Cray Kaiser Ltd., shares valuable insights on preparing your business for a successful transition. Whether you’re planning to pass your company to the next generation, sell to a third party, or position your business for future growth, preparation is crucial. Join us as we delve into the foundational practices that set the stage for a smooth and strategic process.
Transcript:
My name is Deanna Salo, and I’m the Managing Principal here at Cray Kaiser, Limited CPAs and Advisors.
The next point is probably where people get really close to signing something, and that’s a letter of intent, also known as an LOI. My next part here is to talk about what really needs to be in that letter of intent. Our clients receive letters of intents from prospective buyers and they can be very vague. And in the vagueness, they may feel that it’s giving each party a balance of opportunity to future, to negotiate in the future on these various points. I see the letter of intent, the LOI, as the framework of your purchase agreement. So I believe the letter of intent does need to be far more specific in terms of what it needs to include and I believe they need to include the following items.
The purchase price and the purchase structure definitely is the first line of every letter of intent. I’m going to give you X dollars for your company and this is going to be an asset purchase or it’s going to be a stock purchase. The difference between an asset purchase and a stock purchase is probably its own audio blog at its own time, but often people understand when they go into selling their business that those are the two structural options that they have in terms of how the purchase of their company may be transacted.
How much is going to be paid in cash? Sometimes if I’m going to be selling my company for X dollars, I may get a certain percentage of it in cash at closing, and the rest of it might be paid to me over time in an earn out with interest or with not interest with a promissory note. So being very specific as to what is the dollar amount for sure, what is the structure of the deal for sure, and then more importantly is how much am I going to get at close. So if the buyer needs to finance this purchase, you as the seller need to know that very early in the conversations.
An escrow, similar to selling a house, there might be an escrow requirement. Most deals that I’ve seen in the last five to six years, they all have escrows. And an escrow is effectively a certain percentage of the purchase price that’s held in a separate account in the name of the buyer and the seller for a certain period of time, until such time is all of the post-closing adjustments have been handled by the post-closing activities. It’s really to keep money aside for some of those loose ends of the deal, and then at the end of the period, the escrow is finally released to the seller. Another important part of the escrow is to understand how long do I have to wait for this escrow to be released. We see anywhere from six months to twenty-four months on these escrows. So it’s really important for the buyer to understand that the seller needs to know how long is that escrow going to need to be in place.
The networking capital requirement is also a very important part of a definition in a letter of intent. Networking capital is really current assets, less current liabilities. If you can picture the first day of operations of the new buyer with your company. They open on day one and they need operating assets to operate. They need receivables to be coming in and they certainly still might have some of your net payables that they need to pay out. So understanding how much of the networking capital component requirement will be of the buyer is another important part of the LOI in terms of specifying what that would be. Most times we just see that there will be a networking capital requirement, and most times the buyer may not yet be ready to understand what that amount might be because they haven’t completed their due diligence. But I would say that at the very least, it should say that there is going to be a networking capital component, and it will be agreed to by both parties. So this way, you as the seller, make sure that you have a voice to that final amount of what might be needed in that networking capital component.
The letter of intent should also be very specific as to how much time the buyer has to complete their due diligence. You know as a seller time can be in your favor and time can be your worst enemy. With economic conditions changing so very quickly, if the buyer takes way too long to do their due diligence within the LOI framework, you may have economic conditions that will hamper the company’s ability and might actually reduce the value of your company. So making sure that the buyer has a specific period of time, we’ve seen it as few as forty-five days to complete their due diligence, all the way up to ninety days to complete their due diligence. Understand that letter of intent is an exclusivity arrangement between you and the buyer meaning at the time you sign the LOI, you are precluded from talking to anyone else. While an LOI is not binding, it does keep you both kind of on the same course to be honoring that LOI and being good stewards of the process to ensure that it gets completed in the right amount of time.
One of the other things that I see in LOIs that sometimes is missed is the transaction costs, professional fees. Professional fees should be taken on and each of the parties, the buyer and the seller, should take care of their own bills. As the seller, you can’t control how much attorney costs, advisory costs, will be generated by the buyer. And conversely, the buyer doesn’t have any control of the seller’s professional services from their accountants and attorneys. Ensuring that the transactional costs are paid for by each of their own parties and kept separate also commits to the letter of intent that should this deal not get done, meaning either party decides to walk away, that each party takes care of their own transaction costs at the end of the transaction.
The Non-Compete Agreement. Most times, the buyer will want to make sure that the seller, once they sell their company, they can’t turn around the next day and go open up a competing company down the block. So a non-compete is a very common additional bullet point in the letter of intent to suggest there will be a non-compete agreement, there will be a dollar amount assigned to the non-compete, and the seller will be precluded from operating in this industry for a certain sum of time. Perhaps a year, two years, three years, but it should be commented on that you as the seller will be committed to a non-compete. There’ll be a compensatory amount assigned to it and that you don’t want to have this non-compete to be for five or ten years. You want it to be a reasonable amount of time because if something goes wrong, you sell the company, the buyer is not really doing well with your company and you see it happening, you may want to open up your company again and having the non-compete understanding in the letter of intent protects both parties from doing the right thing during that period of time after the closing of the sale of your business.
Each company has key executives in their company, we wouldn’t get to where we are without having key personnel and ensuring that your key personnel are taken care of, I think is one of the head-to-heart conversations that most of our clients have. You know when you’re selling a business it’s a very emotional process and you’ve worked your lifetime to create the value, to create the place that you’ve created for your employees and your customers and your vendors and making sure that your key personnel are taken care of is very important to most sellers. So in the letter of intent, it’s another important part to have that the key executives in the company will be executing their own employment agreements with the buyer. So this ensures that you as the seller have a place for each of your key employees in the new company.
So we’ve talked a lot about mergers and acquisitions today mostly on the acquisition side and getting ready to be sold. Again, I think it’s important for any company in their strategic planning process to have many of these tools in their toolbox, being ready for a transaction, whether you’re going to buy a company or whether you’re positioning yourself to close, getting your financial warehouse in check, and getting ready operationally with your organizational structure to ensure that you have all the pieces laid out, the footprint of your company, understanding what should be included in a letter of intent, whether you’re buying again or selling your business, and making sure that your people at the end of the day are going to also be taken care of through employment agreements and be part of the team even in the in the new company if you’re selling your company.
All of this process there’s lots of phases to this process and at Cray Kaiser you know we’re here to help our clients again to and through their transactions at whatever point in their life cycle they’re at and if you need any further assistance on that please feel free to give us a call. Cray Kaiser is here for you during any part of this transaction.
