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ESOP Blog

Corporate Succession Planning and the CPA

[fa icon="calendar"] Jul 2, 2016 1:51:00 PM / by Kevin Long

Kevin Long

There is no denying that all privately held companies will, at some point, be sold to or merge with a third party, transferred to family members, sold to their employees – or not survive. Very few companies have the option of going public. Because most non-publicly traded corporations eventually face the challenge of succession planning to perpetuate and flourish, the only big questions for the owners and shareholders are how and when?

The CPA is the one professional advisor who understands a business's accounting, tax and management issues and has had the opportunity to build a relationship of trust over the years. Many, if not most, businesses will begin the succession planning process with their accountant. Obviously, the larger a business and the more complex its financial and management structures, the earlier succession planning should begin. Experts advise that planning should begin at least 5 to 10 years in advance in order to realize the business's full value and ensure a smooth transition.

It's important for every CPA to bring the issue of succession planning to the table, or see that another professional does. These engagements are often the largest that a CPA firm will undertake. So whether acting as the lead advisor on the client's team, or in a supporting role to strategic advisors, the CPA provides significant, critical services – tax planning for the company and its constituents, compensation planning, the personal estate tax planning that comes with such events, and in many cases supporting the CFOs in the transaction itself.

Advice on how to transfer or sell a company between shareholders or to its employees and executives  is typically considered before owners and management begin the process of bringing their company to market. The CPA should start here and plan early. This includes:

  • Adequate time for the owner to articulate and refine his/her goals, and to consider the most desirable type of transaction to meet those goals.
  • Bringing together other professional team members (investment advisor, valuation specialist, tax attorney).
  • Creating a timeline.
  • Identifying and mentoring (or recruiting) next-generation management.
  • Planning for the owner's phased-out or continuing involvement.

Every business is unique, but most business owners have the same goal – to fully realize the promise of their most valuable asset, the business they put so much time and sweat equity into building. The CPA can make sure that time is on their side.

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Kevin Long

Written by Kevin Long