Looking out for America's Wealth: Small Business Accounting Firms - Part 2

The two days my boat was cleanest was the day I bought it and the day I sold it…

Preparing for the eventual sale of a business – the exit strategy – can be one of the best things that happens to the performance of a company. It’s like listing a boat for sale; everything gets cleaned up, topped off and running perfectly.

Same is true with a business. The steps involved in getting an exit strategy in place are frequently common-sense steps that a business owner could take regardless of an intent to sell.

As a trusted advisor to the clients of your accounting firm, you can help improve the day-to-day performance of your client’s business by helping them see the value in a thoughtful exit strategy.

As pointed out in other blogs posted here, most business owners don’t really have a plan for the inevitable sale of their enterprise. According to the Exit Planning Institute, while 83% of business owners claim to hold regular family conversations about transition, 70% have no formal exit strategy written and documented — and 82% don't feel fully prepared to execute a transition. That gap matters, because business owners are not always in control of their exit timing.

Here’s three considerations that can help you help your clients:

Exit planning can drive meaningful improvements in business performance. Do you believe your clients are prepared for an exit? You can help them be in a better position when they are ready to sell by helping them focus on strengths that can increase the value of a business. These might include:

• Recurring revenues: Do they offer services that reduce billing and revenue seasonality. Can these offerings be enhanced?
• Customer diversity: Limited concentration of revenue with clients and a predictable record of retention is important to potential buyers.
• Margin quality: A consistent, defensible earnings history is just as important as client retention.
• Staff leverage: Does the firm have quality associates, capable managers and loyal client relationships?
• Modern workflow: Use of cloud platforms and automation might be important. How clean is the reporting of activities, revenues and costs?

Helping your clients put together an Exit Team is an invaluable service to them – helping ensure they get the most out of their life’s work.

A successful (and profitable) exit isn’t a solo effort. It requires a coordinated team—professionals who understand the process, anticipate issues early, and work together to support a smooth transition.

A strong exit team should include:

• You. As a trusted advisor to your client, you are equipped to ensure financials are accurate and may be best able to understand the tax implications of different deal structures as presented by a business advisor/broker.
• A business advisor/broker: A critical partner in the process. They prepare your materials, manage confidentiality, screen qualified buyers, guide negotiations, and keep the entire process moving.
• A transaction attorney: Reviews and drafts legal documents, protects your client’s interests, and ensures the deal is structured correctly.
• A financial or wealth advisor: If your firm does not provide these services, then enlist help to ensure understanding how the sale fits into your client’s long-term financial goals, retirement plans, or next venture.
• Key internal leaders (when appropriate): Trusted individuals who help prepare operational details or support transition planning.

Using the planning process to help streamline operations and be prepared for eventual transition.

Once an exit team is in place, the next step is preparing the business to operate smoothly without reliance on your client – the business owner. Ultimately, a buyer will want to be confident that the company will continue running smoothly after a sale and handoff. Here are some areas to encourage focus on:

• Documenting workflows and responsibilities so daily operations are clear, consistent, and transferable.
• Strengthening middle management to reduce owner dependency and show buyers the team can run the business.
• Cleaning up outdated systems or processes that slow operations or complicate handoffs.
• Updating compliance, licensing, and vendor agreements to avoid surprises during due diligence.
• Ensuring financial and operational reports are accurate and accessible, making it easier for buyers (and lenders) to evaluate the business.

While it’s true that, as an accounting professional, you may not have any expertise in many of these areas, what you do have is the factual, inside information about the performance of the business, and what results need to be improved to make the business more valuable. That’s important to any business owner.

Bringing a business advisor/broker into the exit planning process early is a great service to your clients that costs them nothing and helps start the conversation about the eventual sale and the value of your client’s business. Because it can years to not only get a business ready to sell, but to complete a sale and exit, it’s never too early to start the conversation with your clients.

Remember. Approximately 50% of business owners are ultimately forced into involuntary exits due to partner disputes, health events, death, disability, or financial distress. Keeping these facts at the forefront of strategic conversations with your clients is great client support. Planning for some unforeseen situation is good client service, good business, and a good way to look at operations and profitability in a new way.

Please call me if you have clients who are considering an exit or with any questions. 612-964-8884