When is the best time to get a property tax due diligence analysis of your business or building acquisition? Short answer – long before you close. What you don’t know about property tax can hurt you and your cash flow.
Knowing that property taxes equate up to 40% or more of your local and state taxes, wouldn’t you want to know that your property tax projections are accurate after the acquisition is completed? Conducting acquisition due diligence pays off in more ways than one. With proper due diligence, your organization can benefit from 3 major aspects.
Because property taxes are the largest percentage of state and local taxes and the largest cost of occupancy for companies and property owners, the possibility of property tax increases needs to be included into your financial proforma and annual budgets.
Without due diligence, your portfolio’s tax obligations could increase exponentially, leaving you without sufficient accruals in the budget from one year to the next. A due diligence study projects what you’ll likely owe in taxes and when you’re required to pay them. This helps you manage and anticipate surprises related to your tax assessments. Commercial property tax experts have the skills and experience to look for these and other potential financial risks when conducting due diligence.
Improved Cash Flow Management
Due diligence helps map out the future of your cash flow before the acquisition of a company or a property. Many buyers will spend the money to model an acquisition over a period of time to understand the business, its potential, and to test the cash flow.
However, most will not make the investment in a property tax due diligence study to understand the impact of the proposed transaction on their property taxes. This includes both real estate and business personal property. Skipping this step can lead to major surprises in the form of a much higher tax bill than anticipated.
Credible External Analysis
The information gathered and analysis conducted by experts during the due diligence process impacts your underwriting as well as knowledge of market value and tax liability. Your property tax experts are also equipped to help you conduct a successful appeal, should that be necessary, and secure savings on your property taxes. Having analysis done ahead of time better prepares your organization for future property tax management to be handled more efficiently.
To guide your acquisition due diligence research, download our new checklist: