{"id":55052,"date":"2024-08-09T08:00:00","date_gmt":"2024-08-09T13:00:00","guid":{"rendered":"https:\/\/taxprocenter.proconnect.intuit.com\/?p=55052"},"modified":"2024-08-30T09:58:48","modified_gmt":"2024-08-30T14:58:48","slug":"a-tax-accountants-role-in-exit-planning","status":"publish","type":"post","link":"https:\/\/accountants.intuit.com\/taxprocenter\/advisory-services\/a-tax-accountants-role-in-exit-planning\/","title":{"rendered":"A tax accountant’s role in exit planning"},"content":{"rendered":"\n

With a record 10,000 boomers<\/a> retiring every day, more family-owned business owners are planning to step away from day-to-day responsibilities and pass on the reins. With an estimated $80 trillion in wealth<\/a> transferred over the next two decades, how many of those owners and their families are fully prepared for that transition?<\/p>\n\n\n\n

Not many. Data shows only 30% of family-owned businesses<\/a> transfer to the second generation due to the absence of appropriate exit planning.<\/p>\n\n\n\n

That\u2019s where you come in\u2014or should be coming in.<\/p>\n\n\n\n

As the most trusted advisor<\/a> to your business owner clients, you are ideally positioned to guide them on many aspects of the exit process. You know the financials inside and out. You know the company\u2019s market. You know the owner\u2019s dreams, fears, and goals. You can help businesses prepare a comprehensive exit strategy, addressing all potential challenges and contingencies. No one is in a better position than you to enlighten clients about the risks of inadequate planning, and work with them on a well-considered roadmap for business succession.<\/p>\n\n\n\n

Here\u2019s the best part: If you do the job well, you will likely be asked to stay on by the new owner, whether it\u2019s for the existing management team or an outside third party.<\/p>\n\n\n\n

Apathy toward exit planning<\/strong><\/p>\n\n\n\n

Many tax professionals don\u2019t make exit planning a priority. They don\u2019t prioritize their own exit plans, let alone those of their clients. Some believe that exit planning is too complicated, while others think it’s only for larger businesses. Recently, business mentor and exit planning specialist Christine Nicholson<\/a> <\/em>told me on my podcast that it’s time to change that perspective.<\/p>\n\n\n\n

\u201cThere is too much at risk to do nothing,\u201d said Nicholson, who believes it’s common for CPAs and finance professionals to view exit planning as something outside of their core competency. \u201cAs a trusted advisor, you don\u2019t need to be the expert in everything; you just need to get the journey started and get the support each client needs.\u201d

The other misconception among owners is that they have plenty of time to get their ducks in a row, but more than 50 percent<\/a> of business owners experience an unplanned event. Nicholson calls those events \u201cThe four Ds\u201d of the business owner\u2019s apocalypse: death, disease, disability, or divorce. The four Ds can hit anyone at any time because they are not events anyone typically plans for. Having strong exit and succession planning means you are ready for any one of these events. Doing so de-risks the business, the owner, and their financial future security. It\u2019s just good business.<\/p>\n\n\n\n

The unprepared business owner: A success story<\/strong><\/p>\n\n\n\n

A business owner nearing retirement<\/a> wanted to sell his business. With no plan in place, the business was initially unsellable and significantly undervalued. Nicholson said that once she conducted a thorough assessment of all aspects of the business, it was clear where the owner needed to put the most effort to get the fastest increase in value.<\/p>\n\n\n\n

First, accountants started updating his financial records, making sure they were comprehensive, then she put together a succession plan<\/a> and started transferring decision-making power at all levels with greater transparency and consistency. The owner also recognized that within his team he had someone who could, with some support, take over the leadership of the business. By clearly defining roles and responsibilities in the business, and by creating a new managing director role, Nicholson said it became easier to transfer control of the business to an existing key employee.<\/p>\n\n\n\n

The hard part for the owner was letting go. While it was emotionally tough for the owner, she showed him how stepping aside\u2014and not having the business so heavily dependent on him\u2014would make the business more sellable. Ultimately, he agreed. In addition, by deferring the sale for at least a year, profit margins and valuation improved by more than $1 million in one year on top of 25% revenue growth.  Nicholson said the owner now has a business ready for sale any time he chooses and<\/em> a potential buyer from within the existing management team that now runs the business without his input.<\/p>\n\n\n\n

Scenario planning<\/strong><\/h3>\n\n\n\n

As an accountant, looking at the different financial outcomes of selling the business within the next year, five years, or 10 years means the business owner can make informed decisions about timing. Exploring what happens if the business’ industry faces a downturn, new competitors, or other threats gives the business owner choices about the level of risk they are willing to take. Each scenario’s financial outcome adds a new dimension to the exit strategy, allowing for the formulation of a plan that is not only flexible, but also resilient.<\/p>\n\n\n\n

Partnering for comprehensive planning<\/strong><\/h3>\n\n\n\n

Your understanding of a company’s financial landscape is valuable, but a successful exit plan requires a wider range of knowledge and experience. That\u2019s why I strongly recommend collaborating with outside professionals, each contributing unique expertise to create a comprehensive exit plan.<\/p>\n\n\n\n

If you don\u2019t already offer valuation services, consider building partnerships with business valuation experts\u2014since an independent valuation is such an integral part of the exit plan. This will help align the business owner’s expectations with the potential buyers’ perceived value of the business.<\/p>\n\n\n\n