How Transaction-Ready Accounting Increases Your Business Value

**Roscoe Graves** (0:01)
There's a reason why they're buying you, and the quicker you can figure that out. You haven't paid the IRS your employment taxes, that's $25,000.
Where did that $25,000 go? And if that went to more sales, now you kind of have an issue, right?

**Jacob Oros** (0:20)
Welcome to M&A Talk, the number one podcast on selling a business brought to you by Morgan & Westfield, a boutique M&A firm specializing in the sales of small to mid-sized companies. I'm your host and president of Morgan & Westfield, Jacob Oros. If you're considering selling your business and you'd like to work with me throughout the process, you can schedule a free consultation at morganandwestfield.com. Or if you'd like my team and I to perform evaluation of your company for a one-time fee of $1,500, visit morganandwestfield.com or see the link in the show notes.
Today, we're going to talk with Roscoe Graves of Palaxis. He's been on the show multiple times in the past. We're going to talk about the difference between your everyday compliance accounting that is primarily for tax purposes and financial due diligence. Roscoe, welcome back to the show.

**Roscoe Graves** (1:15)
Thank you, sir. Glad to be here.

**Jacob Oros** (1:18)
Your everyday compliance, bookkeeping, accounting for tax purposes versus financial due diligence, why is this even necessary to discuss?

**Roscoe Graves** (1:29)
Yeah, I think that there's an I think people kind of maybe get this a little bit misconstrued, but the accounting finance universe is massive. The work that you do for a not-for-profit or governmental agency is completely different than a for-profit, a plumber versus a, you know, fast food restaurant, et cetera, right? So, there's no kind of one type of accounting. There's no one way to do things. And really what people need to and business owners need to consider when they're thinking about a transaction is what is the intent? And so, the intent of completing a tax return, the intent of performing bookkeeping in order to have financials for a loan are entirely different than preparing for a transaction. And I think as business owners consider transactions, they need to think about what is the intent? And do my financials match the intent that I'm trying to achieve?

**Jacob Oros** (2:23)
And for most business owners, when they think about accounting and preparing financial statements, bookkeeping and so forth, but really just thinking about compliance for the most part, right? Tax?

**Roscoe Graves** (2:35)
For the most part, right. Most small business owners, their biggest thing, and it can be a massive hurdle is just getting a tax return out, right? So let me get all my bookkeeping. A lot of people are doing bookkeeping at the end, right? So in March, they're doing all the bookkeeping. In March of 2026, they're doing all the bookkeeping for 2025 because all I need is a tax return. And that may not, again, that gets you for the compliance. It's not wrong, but that gets you to a tax return. But when you're looking at doing a transaction, that may not be enough for that transaction. And for example, if you're doing bookkeeping and all you're kind of concerned about is a tax return, your tax preparer, your bookkeeper, may only really focus on the total year, January through December. They may not even look at what's happening throughout the periods. You may have negative income and negative earnings, negative revenue in one month. And then you have three months in another month. They may not concern themselves with that. Cause again, that's not the intent. But obviously in a transaction, that monthly detail of what's happening makes sense. And so when you get in a transaction and, hey, why is March negative?
Well, I made it up in these months. That doesn't really help you during a transaction.

**Jacob Oros** (3:48)
Why can't a buyer just kind of snoop around and figure things out during diligence?

**Roscoe Graves** (3:53)
Buyers can. I think though what you want them to do is focus on what's important, what's not important. And I think what you don't want, and this is really with anybody that's reviewing your financials, the IRS would be the same kind of viewpoint of the states. You want them to kind of have a good feeling of what's going on. The minute they get into this is messed up and I don't really understand it, then they're going to ask many more questions. And it takes a lot more effort to get them back to know this is just an anomaly.
And so what you don't want to do is get them to this doesn't make any sense. And I need to ask every single question possible.