Avoid getting more than you bargained for in M&A deals
Sales tax automation can be an asset in post-merger integration
More markets to conquer, more products to sell. That’s what business leaders hope to gain from mergers and acquisitions, according to Deloitte’s latest M&A trends report. The majority of companies surveyed (76%) asserted that M&A factors prominently in their 2019 growth plans, and about a third of those said their expansion plans include foreign markets. Among mid-sized companies, a desire to diversify is driving M&A, with cross-sector and cross-industry buys making up a third of deal activity in 2018, according to PwC.
As appealing as they sound, M&A transactions can be tricky. What happens after the deal closes can be as important as what led up to it — maybe more so. The importance of a well-thought-out integration strategy can’t be stressed enough. Take stock of your technology: Are the platforms, systems, and software solutions you have now adequate or are critical changes needed to fully take advantage of growth opportunities? This includes a tax compliance solution that can scale with your business as it grows.
Business gains can lead to tax pains
Meshing together people, assets, systems, and processes is a messy process. It takes smart planning and careful execution to do it right. Your newly formed entity, while ripe with promise, could also pose some challenges. Parts of the two businesses may naturally align; others may not. Sales tax typically falls into the latter bucket, but rarely gets addressed early on. Finance, operations, and IT have their hands full with other priorities and the minutiae of managing sales tax is typically way down on the list. It shouldn’t be. Syncing sales tax management early in the process can save you from serious compliance headaches later. For starters, the target company may be carrying tax attributes on its books or ongoing tax audits that could transfer to the new organization. These should be properly identified and managed early to avoid costly and risky surprises later.
State auditors pay close attention to M&A activity. Changes to your business traditionally lead to changes in your sales tax obligations. That’s almost certain to happen now that economic nexus is the de facto standard for sales tax collection in more than 40 states. So, it helps to assess how the assets you acquired in the deal — more locations, more customers, more products — affect your sales tax liability. Having a reliable, scalable plan in place to deal with any new tax obligations that result from these changes is imperative to avoid any lapses in compliance that could come back on you.
Include sales tax compliance in your integration strategy
Following a merger or acquisition, it’s good practice for CFOs or controllers to dive deep into how compliance is being managed, identify vulnerabilities, and look for new or better ways to operationalize or optimize the newly combined businesses. This is the perfect time to address redundancies in platforms or applications. You may also uncover process gaps where new solutions or functionality are needed to advance your growth objectives.
Accenture found that companies that take the time to properly integrate systems following a merger reduce the costs of key business functions by as much as 40%. Yet companies often underestimate the complexity or work that goes into merging systems and processes. Failing to properly integrate systems may lead to mistakes, miscalculations, or replication of data. While it’s understandable that differences may exist early on in the process, such discrepancies are harder to explain or defend over time.
For many companies, this is the tipping point when tax automation becomes critical. CPA firms routinely advise clients to automate sales tax following a merger or acquisition to reduce compliance costs and audit risk. And a TechValidate survey of Avalara customers found that a third of the companies that made the choice to automate sales tax had been through a merger or acquisition. Another 20% of the customers surveyed planned to acquire a company in the near future and proactively chose to automate sales tax to prepare for the event.
Manage tax change with automation
Changes to sales tax rates and rules are often done last minute or with minimal notice, so it’s not always easy to know when they happen or how they affect you. If you’re making these updates manually in several different systems or server locations, it’s a lot harder to be consistent and timely, which could impact sales and customer service. Avalara’s automated, cloud-based tax solutions make those updates and changes in real time and push that data to all your systems simultaneously, so you don’t risk these errors or oversights.
Having sales tax automated in your ERP, ecommerce system, or other financial application ensures you’re able to keep up with your compliance obligations as your business grows or changes. Cloud solutions like Avalara integrate easily with your existing systems and can help protect against lost or spotty data resulting from a platform change, upgrade, or consolidation. They can also help unite valuable transaction and tax data from disparate systems and processes, so you have a singular view of your new entity. Learn more about managing growth and mastering tax compliance with Avalara.
Avalara helps businesses of all sizes get tax compliance right. In partnership with leading ERP, accounting, ecommerce, and other financial management system providers, Avalara delivers cloud-based compliance solutions for various transaction taxes, including sales and use, VAT, GST, excise, communications, lodging, and other indirect tax types. Headquartered in Seattle, Avalara has offices across the U.S. and around the world in Canada, the U.K., Belgium, Brazil, and India.