Assisting Your Clients with Exit Planning

By Andrew Rogerson


COVID-19 and the pandemic haven’t changed one simple fact: CPA firms have been in change mode for more than a decade—changes driven by technology and the market itself. However, CPA firms are certainly not the only industry impacted, and many clients have been asking, “What’s next?” long before the disruption of a global pandemic.

In fact, California CPA recently covered “Succession’s Speed”, in which author and CalCPA MAP Committee member Mark Fowler interviewed some members about the permanent changes COVID-19 has already brought to their businesses and how the pandemic is affecting succession planning. While our focus is often on our own businesses, many accounting firms are business-to-business services, and your clients may be facing some similar challenges.

What is the accountant’s role in this process? What challenges are your clients facing that you can help them with? Can you assist them with making data driven decisions? Here are some answers.

What Has the COVID-19 Crisis Done to Business Values?
If you’re going to exit the accounting business, it usually takes three to five years to establish a solid exit plan. There’s a lot that goes into it, including ensuring that your firm is not only healthy by the time you sell, but also your technology is up to date, and you have the personnel in place to help both the new owner and your clients through any transition.

Some firms or some of your clients may consider attempting a more rapid exit during this time. Some accounting firms and other business owners have even made the extraordinary decision to close their businesses because it was time to retire or move on, rather than trying to sell.

Why is this true? Because many business values have fallen during the global crisis, but worse, in many cases, establishing a business value right now is nearly impossible. Bigger questions loom about the future of certain industries, and a company’s ability to pivot to that new future.

In fact, several S&P companies have pulled earnings guidance making it difficult for analysts to determine if a company hit its goals at all. In many cases, a business valuation will ignore the COVID-19 shut down period as an anomaly, but that may or may not be effective due to the changes many businesses have experienced.

What’s the solution? Encourage any client who talks about selling their business to get a business valuation from a certified business broker. Advising someone on what steps to take next is nearly impossible without knowing what their business is worth now, were they to sell it, what is was worth pre-COVID, and what it may be worth if they wait until the “new normal” emerges, regardless of their industry. 

Once they (or your firm if you’re considering exiting your business) know what their business is worth, and the impact of a rapid exit or a more measured one, there are other things to consider. 

Is Anyone Buying Businesses Now?
It’s a good question, and the answer might surprise you. While in a recent study, Stanford showed that buyer expectations about what they will pay for a business have gone down 10 percent to 30 percent, sellers have not responded to those expectations on the whole. 

One reason is simple: many investors are seeing this as a time to invest in mergers, acquisitions, and in smaller businesses who are: 
  • Maintaining their business health despite the recession;
  • May even be growing during a recession;
  • Are poised for growth once a “new normal” economy emerges; or
  • Are likely to recover following the COVID crisis, but are less expensive to purchase now, in a “down market.”
There are a lot of businesses for sale, and a number of willing buyers. There are some things that your clients, whether they are buyers or sellers, should understand:
  • It takes time to sell a business, and even a “fast” exit will likely take six-12 months. In the current environment, a lot can change in that time period. Be prepared for the unexpected.
  • The market will determine the price for your business. Find a business broker you can trust, and as an accountant and adviser to your clients, remain focused on their end goal and what they need and want financially for a successful exit.
  • Taxes are always a big concern when a deal is structured. Try to work the best you can for your client. Just don’t “break the deal” over a few hundred bucks in taxes.
Bottom line? You clients can sell their business now. It your clients are wise you and their business broker will have a large role in the process. 

CARES, EDIL, PPP & Selling a Business
How do the recent government assistant loans affect selling a business? Well, from a business broker perspective that assistance came to the individual who owns the business. So if someone buys the business before any loans have been forgiven or while they were outstanding, what impact does that have on the structure of the sale?

Technically, the loans or assistance stays with the current business owner. The best scenario is that those loans are forgiven or repaid before closing. Either that, or the sale should be constructed in such a way that the current business owner can pay off the loans with the proceeds of that sale. 

The current advice is that if your client (or you) is considering buying a business and the seller wants you to take over any Payment Protection Program (PPP) or other loans, consult with an attorney and your business broker.

Your Role as an Accountant
When selling a business, nearly every seller will have accounting and legal questions. Normally, selling a business takes a team: a business broker, who is like the quarterback who makes sure all aspects of the transaction go smoothly; an accountant, an attorney, and sometimes others who assist with various tasks. 

As an accountant, you can help your client:
  • Prepare for due diligence. Help them ensure that all of their paperwork, including taxes (both personal and business), profit and loss statements, and cash flow sheets are up to date and accurate.
  • Recasting books if necessary. Most small business owners want to avoid paying taxes as much as possible. It’s sometimes necessary to “recast” their books, removing certain expenses and putting other income sources back in to show the true business potential. Your business broker can help, and you can advise your client on the tax implications.
  • Assist with the tax portion of the structure of the sale. Make your client aware of the tax impact of the sale of their business and help them navigate how to roll that money over into investments for whatever is next in their financial journey, from retirement to purchasing another business. 
Whether you’re doing your own exit planning and moving on to whatever is next for you or assisting a client with doing the same, you should contact a certified business broker who knows how to guide you through the process. 

Andrew Rogerson is a Certified Business Broker with Rogerson Business Services.