Cash Is Best

BY JAMES MCKEOWN

Price Equals Value Plus Terms ” ( JofA , Dec.04, page 67) is one of the most comprehensive articles on CPA practice pricing I have ever read. However, the comment, “Low interest rates have encouraged many recent buyers to borrow the money to make a large down payment and thereby reduce the purchase price,” defies accepted wisdom.

Those who charge their purchases often pay far more than those using their own cash at closing—and so, too, have many CPAs, plied for decades with bankers’ accommodating credit.

James McKeown, CPA
Cicero, New York

Author’s reply: I agree wholeheartedly with the writer’s point regarding cash up front. The article was citing a trend, not my opinion, regarding this subject. However, your comment is based on the assumption that the buyer has the cash available without the need for an external lender, which is definitely not the case in every situation.

Also, if a buyer can reduce a multiple to, let’s say, 0.75X instead of 1X with additional cash, that may be a greater savings than the interest factor.

Joel Sinkin
J. Sinkin Consulting
Happauge, New York

SPONSORED REPORT

How the election may affect taxation of business income

This report summarizes recent proposals to reform the U.S. business income tax system and considers the path to enactment of any such legislation.

VIDEO

How to Excel pivot a general ledger

The general ledger is a vast historical data archive of your company's financial activities, including revenue, expenses, adjustments, and account balances. J. Carlton Collins, CPA, shows how to prepare data for, and mine data with, PivotTables.

QUIZ

Did you follow 2016’s biggest accounting news?

CPAs will remember 2016 as a year of new standards and new faces. How well did you follow the biggest accounting events? The 7 questions in this quiz will help you find out