Your professional team is the fourth component of exit planning preparation. We’ve already discussed valuation, distance to goal and classes of buyers. Taken together, these basics aren’t enough by themselves to execute an exit plan, but understanding the first three and assembling the fourth will go a long way to ensuring that any plan you develop is practical and achievable.
Many clients say “No problem. I already have a lawyer and an accountant.” But your professional team should be able to offer more than just technical advice.
Any competent CPA can tell you what the difference is between ordinary income tax and capital gains. Far fewer can suggest ways to structure transactions to move income from one tax category to another.
Similarly, most business attorneys can write (or download!) a purchase agreement. Picking a reasonable path through another attorney’s demands for every representation, warranty and indemnification imaginable is another matter.
Your First String Professional Team
There are two tiers of necessity when it comes to team members. On the first tier are those without whom you cannot do a transaction.
- Transaction attorney: One who knows the ins and outs of transferring a business. This might include converting customer and vendor contracts, required notifications of regulatory authorities, state law regarding notices to employees, as well as the aforementioned contract experience.
(Suffice to say that your real estate attorney/escrow agent, estate planning attorney or slip-and-fall litigation defender is probably not the guy.)
- A forward looking accountant. Some business people would say that is an oxymoron. Most accountants, after all, make a living by telling clients what has already happened. Unfortunately, once a transaction is completed it is usually too late to do much tax planning. Look for someone who can make suggestions, and does so in the very first conversation. If he or she says that they will have to analyze the deal (for a fee) before they can share any ideas; move on.
- A process manager. Whether you are transferring to family, employees, or a third party buyer, your most important job is to keep running a healthy business. The process manager keeps things on track. He or she calls the other professionals to enforce deadlines. Ideally, the process manager knows enough about the technical components of transfer to lend experience and ideas.
The process manager might be an exit planner, a business coach, a consultant, the attorney, the accountant, or anyone else you trust. He or she must acknowledge the responsibility for coordinating the deal and driving it forward. That includes holding you accountable when necessary!
The Rest of the Team
The balance of the team may include some or all of those listed here.
- Valuation specialist: In a third party sale, it is good to have an objective view of your enterprise value. In a sale to employees, it helps settle concerns about self-dealing. (If you are choosing an ESOP, you may not want to bother. The trustee will have to get an appraisal anyway.)
- Insurance broker: If you are anticipating some seller financing in a transaction, you may want to insure the lives of the buyers. If it is a staged sale, they might want insurance on you.
- Financial planner: Someone who can tell you whether your planned proceeds will be sufficient in retirement.
- Wealth manager: Those proceeds will hopefully be enough to warrant professional investing expertise.
- Exit planner: Usually, but not always, the exit planner fills the role of the process manager. In some cases, the exit planner is only charged with designing the overall exit strategy.
- Value enhancement specialist: If your company needs to grow substantially in order to reach your goals, doing what you’ve always done isn’t likely to get you there.
This list probably has you visualizing dollar signs with wings, but I’ve worked on multiple cases in the last few months where a good advisor saved an owner hundreds of thousands of dollars.
- You wouldn’t choose your high school football team to play Alabama for the NCAA national championship. Nor would you expect ‘Bama to beat the Patriots in the Super Bowl. Selling your business is the championship game of your business career. Why wouldn’t you want the best professional team available?
John, thanks for this excellent Blog Post. It’s a reminder to business owners that selling a business is much more complex (and generally takes a lot more time if done properly) than selling a house. As an Exit Planning Advisor, I appreciate you providing this information.