The Succession Advisor: Teaming up to sell a client’s business

Many years ago when I was a controller at a publicly held company, I was involved in a number of acquisitions. And although we used a variety of experts for these transactions, the core person was always my boss, the company’s chief financial officer.

He was the person who worked side by side with our CEO for each transaction. He was involved in all meetings. He was the point of contact with the target company. He was the mediator between each company’s executives. In a business acquisition, finance is core. The CFO is core.

The same goes for the sale of a business. For any business owner considering their succession plans and possibly selling their business, finance is also core. Which means their financial person is core. If there’s already a CFO employed, all the better. But if not, someone needs to assume that role. And that person must be the accountant, and preferably a CPA.

Why? Because although there are many cultural, strategic and personality decisions that are involved in a sale-of-business transaction, in the end it’s going to be whether or not the deal makes financial sense. And the one person who can ultimately arrive at this answer is a competent CPA.

But that doesn’t mean the CPA acts on an island. The CPA must lead a team of experts.

For example, every business sale needs a competent broker. A good broker should have at least five years of experience in the field — preferably with businesses in a similar industry. That person should also be active in a national industry group like the International Business Brokers Association or the National Association of Business Brokers (which offers a Certified Business Intermediary program) and preferably with a local group (there are also state organizations like the Pennsylvania Business Brokers Association or the California Association of Business Brokers). The broker should be transparent about the volume of listings they manage, the price realized for their deals versus the asking price, and how they plan to market a listing.

The broker’s job is to find buyers and coordinate the evaluation process. The broker is a salesperson, a connector, a middle-person in the transaction. The broker gets paid (generally a percentage of the purchase price, with the norm ranging from 6-12%) only when the deal is done.

Another instrumental team member is the attorney, who serves to advise on all legal aspects of the deal. The attorney will be familiar with the documentation required — the letter of intent, the offer and the sale agreement among them — and represent the legal interests of their client. The attorney is not a salesperson, although good attorneys could have networks of potential buyers or investors. The attorney isn’t always the best to evaluate the strategic or financial advantages or disadvantages of a deal, but the better ones should bring a certain level of business acumen to the table.

Those four individuals — the CEO/owner, the CPA, the attorney and the broker — make up the team that will lead a sale of a business. Some clients have asked me about the role of the appraiser, but an appraiser is not a team member because, by definition, an appraiser needs to be independent. A banker may be part of an acquirer’s team, but not usually the seller’s. Of course, other experts in estate and retirement planning, environmental issues, technology and wealth management may be needed, but these would all be at the discretion of the seller and brought in when necessary.

Leading the team

All of this should be managed by the CPA who, in a business sale transaction, is performing three critical roles. 

The CPA assumes the role of the primary financial advisor and oversees all financial reporting to a prospective buyer that includes historical income and loss, balance sheets and cash flow statements, even going so far as to offer comparisons with industry benchmarks. The CPA is also ensuring that all documentation required by a buyer, from lease agreements to key customer contracts, are available for review. 

Taxes are an enormous part of a sales transaction, and so the CPA must act as tax advisor, working to minimize the exposure of capital gains as well as state and local assessments. The CPA will work with other experts in estate planning and wealth management to ensure that proceeds from a sale are put in the right financial vehicles for retirement and succession planning.

Finally, and most importantly, the CPA is a strategic advisor. The best CPAs are the ones who sit with their clients and evaluate the pros and cons of any offers — a not insubstantial task, considering that most offers are rarely cash deals. Seller financing is not unusual. Real estate may or may not be included. Ongoing consulting may be required. What’s the best arrangement for the seller and how can risk be minimized? These challenges — and many others — are all puzzles that a financial person needs to address.

So what makes a great CPA great at this? It’s someone who will answers calls at 2 a.m. and who responds to emails timely. It’s someone who has been around the block, seen a lot of similar transactions and is comfortable dealing with multiple parties with different personalities. A great CPA will be straightforward and not pull punches if they think the deal isn’t right for their client. They’ll represent their client’s interests always. and assume the role of primary contact for the transaction, with all questions and documents coming through them. 

And the greatest of CPAs also know their limitations. Sure, they should bring their own tax and financial expertise to a deal — but if things get complicated, they should be comfortable admitting what they don’t know and proactive in bringing in experts who may be able to provide better advice. 

Attorneys focus on legal. Brokers focus on sales. That’s not to say that they’re not also interested in providing a better value-added service for their clients that goes beyond their core competencies. But it’s the CPA, the financial expert, who should be in the very center of things when a business owner sells a company. Finding that CPA is as important as finding the right buyer for that business.

See the previous article in this series here.