The Role of the CPA in the Creation of a Successful Exit Plan

As a CPA and member of the owner’s Exit Planning team, you have three primary responsibilities and opportunities.

“I’d like to leave/sell my business. Can you help me?” How you answer this question determines whether you will represent your clients and their companies in the future.

3 Primary Responsibilities of a CPA

As a CPA and member of the business owner’s Exit Planning team, you have three primary responsibilities and opportunities:

• To inform and educate the owner about your role in the Exit Planning Process.
• To facilitate the Exit Planning Process by coordinating your activities with those of the owner and his/her other advisors.
• To provide services necessary to ensure the owner’s successful transition from the business.

Because comprehensive Exit Planning requires financial analysis, modeling, valuation, estate tax analysis, tax planning, and counseling regarding the best way to promote business value and exit the business, your role can be significant.

Exit Planning Tools and Techniques for CPAs

Listed below are tools and techniques frequently used by CPAs in their role as a member of the Exit Planning Advisor Team.

Step One: Setting Exit Objectives

1. Advise business owner in setting Exit Objectives. 
2. Provide business owner and other advisors with information regarding consistency and practicality of desired Exit Planning Objectives.
3. Analyze business owner’s financial goals and assumptions. 

Step Two: Determining Value/Price

1. Provide periodic and ongoing valuation services.
2. Provide cash flow projections.
3. Discuss methods to minimize valuation as appropriate.

Step Three: Preserving, Protecting, and Promoting Value

1. Perform tax planning necessary to minimize tax consequences to business owner upon exit.
2. Discuss/consider conversion to S status, if appropriate. 
3. Discuss/consider creating of multiple entities as appropriate. 
4. Promote value via:
   1. Creation of sound financial information systems (including audit or reviewed statements if owner’s goal is to sell to third party).
   2. IT, HR, and/or other management services.
   3. Creation of financial model to measure and project growth.
   4. Benchmarking.
   5. Reassessment of debt management and future financing needs.
   6. Reassessment of capital needs (from perspective of ultimate exit).
   7. Consulting services you currently provide to clients.

Step Four: Converting Business Value to Cash – Sale to Outside Third Party

1. Provide pre-sale tax and financial planning, beginning several years before anticipated exit. 
2. Provide extensive financial and tax analysis/advice on consequences of sale. 
3. Prepare 3-year audit, reviewed statements, or other financial information as needed by buyer. 
4. Review/negotiate owner’s financial representations and warranties.

Step Five: Transferring the Business to Insiders: Children, Key Employees, or Co-Owners

1. Provide cash flow modeling and ongoing (annual) valuation.
2. Analyze tax ramifications of sale to insiders.
3. Counsel owner on cash flow sensitive and tax efficient transfer designs.
4. Periodic planning and assessment meetings with owner and other advisors. 

Step Six: Contingency Planning for the Business

1. Provide valuation formula for Buy-Sell and similar agreements.
2. Perform valuation for Buy-Sell and similar agreements (phantom stock plans, etc.).
3. Analyze anticipated cash needs of business should owner die. (Include in this analysis: debt repayment, capitalization, and cash required to keep employees.).

Step Seven: Wealth Preservation Planning

1. Review proposed estate plan, and income, gift, and estate tax consequences.
2. Suggest income tax minimization strategies.
3. Project income tax consequences of various possible asset transfers to children and others. 
4. Analyze both pre-and post-ownership transitions.