Working with privately-held business owners and entrepreneurs is the most fascinating part of my career as a CPA. I am always impressed to see an entrepreneurial spirit risk everything in pursuit of a dream. The tenacious lot, who try and succeed, are an inspiration for future generations. As those entrepreneurs build their businesses, they are often dealing with the hottest fire burning on their desk—all the time! Quite often, their personal financial planning—including the most important aspects of succession and exit planning—take a backseat.

Not only does the business consume their hearts and souls, these entrepreneurs typically have a significant amount of their personal net worth wrapped up in their business.  For this reason, I argue that proper exit and succession planning should be viewed as the most important task a business owner will ever undertake.

I sometimes joke that there are several very good reasons not to have a succession plan for your business. The best reasons I have heard are as follows:

  • I will live forever, and will always be of sound mind and body.
  • No one else but me could ever run this business.
  • If I am not running this business 70 hours a week, I will have nothing to do.
  • Our key employees will stay forever and are not worried about future control of the business.
  • I don’t mind my estate paying 50% of my net worth in estate taxes.
  • My children who are active in the business want me to stay in control and in charge forever.

Sound familiar? Have you heard any of these? More importantly, have you thought any of these? Naturally, these excuses are just that and are not to be taken seriously. But, if you are not succession or exit planning for your business, these are the only (irrational) excuses you can be making!

As a business owner, you must take steps to protect the investment that has consumed your heart, soul, passion…and often has most of your net worth! What could be more important?  The more time you have, and the sooner you start the process, the more options are available. There’s nothing worse than watching a good business go up in smoke in a “fire sale” because a strategic buyer thinks you do not have any options other than to sell.

So, how do you begin the process and make it a priority? The first step should be to schedule an offsite overnight meeting with a facilitator to discuss exit and succession planning in depth.
Consider all your options:

  • Do you have family members who are capable of running the business?
  • Do you have key employees that are capable of running the business?
  • How much are you personally relying on the value and cash flow from the business in your own financial and retirement planning?
  • Is selling to an unrelated third party the right long term solution?
    o Remember, a sale should be planned years in advance so you control the timing.
    o Who are likely buyers of your company?
    o What valuation models are used in your industry for past sales transactions?
    o Should a sales process include professional sell-side advisors, such as an investment banking firm or business broker? (In my opinion, yes, usually it should.)

My recommendation in a nutshell: If you’re not making any of the aforementioned excuses, then force yourself to start the process.  At the very least, you can take a fresh look at your company.  At best, you will have a long-term plan in place that protects you and your business.

Michael Gillis, CPA, PFS, CGMA
Michael Gillis, CPA, PFS, CGMA

Mike Gillis, CPA, PFS, CGMA is the managing partner of DMJ & Co., PLLC. Mike has more than 30 years of experience in public accounting and was named managing partner in 1997. He is a frequent presenter on tax matters, advises privately-held businesses and their owners, and works extensively in the area of succession and exit planning strategies for businesses.

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