At some point, every business owner has to decide to either sell their business, hand it down to a trusted person or shut it down altogether. Most business owners prefer the former two, as they have worked so hard to create what they have today.
But unfortunately, an estimated 30% of small business owners do not have a succession plan in place, which can make selling or transferring a business more stressful.
As a CPA, you can help guide your client through the succession planning process and make the sale or transition as smooth as possible. Here’s how.
Create a Plan and Timeline
A little planning and preparation can go a long way in making the sale or transition of a business less stressful, but it also gives your clients time to maximize the value of their business.
Here’s how you can help your client create a plan and timeline for the transition.
Begin with the End
When creating a plan, start with the end in mind. What are the client’s goals for the business?
- Do they want to pass the business down to one or more of their children?
- Do they want to hand the business over to an employee?
- Do they simply want to retire and sell the business?
When you understand your client’s wants and needs, you can serve as a better advisor and help them reach their goals.
If the goal is to pass the business down to the kids or employees, there are a few important things you can do to help make the transition smoother.
- If the business will stay in the family, make sure the kid(s) are involved in the day-to-day running of the company (if they’re not already) and help prepare them to take over. Rarely are the parents and children ready to make this transition at the same time. Often, the parents are ready to retire and the kids are not quite prepared to take over or vice versa. Get everyone on the same page so that the children and parents are prepared to make this transition when your client is ready to step down.
- If the client wants to pass the business to an employee, get them on board early on. Make sure they are aware of the plan and on the same page.
In general, it is a great idea to get key employees and family members involved at this stage just to make them aware of the plan and the future of the company. By involving the key employees/kids early on, they can be better prepared to step in if there is an emergency, such as the owner having a serious health issue.
Also, if these employees are left in the dark about the sale or change in ownership, they may get concerned about the future of the business and go elsewhere.
Maximize the Value of the Business
Once you have a better understanding of your client’s goals and desires for the business, you can take steps to help them maximize its value.
A little planning and preparation can go a long way in making the sale or transition of a business less stressful, but it also gives your clients time to maximize the value of their business.
Reduce Owner Reliance
The first step is to remove the business’ reliance on the owner. Small business owners are typically very involved in running the company's day-to-day operations. They may oversee many aspects of the business, including:
Daily operations
- Finances
- Sales and marketing
- Launching new products or services
While it is admirable for a business owner to be involved and passionate about the company, it does create a problem if the business is to be sold. When the owner steps out of the picture, how will the business continue to run without their skills and knowledge?
If the business cannot run without the owner’s daily involvement, it will be far less attractive and valuable to prospective buyers.
Help your client bring people on board who can handle these jobs, whether it is hiring new salespeople or bringing on a strong operations manager. The goal should be to get the business to a point where the owner can take a step back without hindering operations or sales.
Maximize the Financial Strength of the Business
Along with reducing owner reliance, you can also help increase the value of your client’s business by maximizing its financial viability through:
- Growing sales
- Increasing margins
- Minimizing non-critical overhead
- Managing profits
- Cash flow planning
Obviously a business with strong, solid financials will be more attractive to prospective buyers.
Provide Assistance During the Sales Process
When it comes time to sell, you can assist your client throughout the process by providing:
- Advice on tax and deal structuring
- Due diligence support
- Financing support for lenders
Additionally, you can support and encourage your client as they prepare for this major transition in their life. It is helpful if they have a plan for their life after the sale, with something to give their life meaning.
Otherwise, you risk them getting cold feet and delaying or killing the deal. Lastly, you can provide the client with recommendations on post-closing investments.
What About Emergencies?
What if the business owner has no time to plan for the sale of their business? Unexpected and catastrophic events, like the death of the owner or an ill spouse, can force the sale of a business quickly.
If your client or your client’s family has to sell and there is no plan in place, you can still assist them through the process.
If the spouse or family does not want to be involved in the business, consider who may want to purchase it. Competitors, customers, and vendors are a great place to start. Create a list and start inquiring as soon as possible.
Make sure that the business is still operating and that employees remain engaged in their roles. Ensure that employees know the business will continue operating. Communication is key if you want key employees to stay on board.
If the goal is to sell, then it is essential to try and make the sale as quick as possible. The longer it sits on the market, the higher the chance of critical employees and/or customers leaving and the value of the business declining.
Many small business owners do not have a succession plan in place, which puts the business at risk if the owner is suddenly unable to run the business. If your client is considering selling their business in the future or is interested in succession planning, you can help them create a solid plan that makes the transition as smooth as possible.
Christopher Hayden, CPA, CMA, CGMA is the managing partner of Hayden Nelson & Yoder, a CPA firm based in Pennsylvania. You can learn more about him and/or the firm on their website HERE.
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