Exit Strategy and Opportunity Reviewed by Momizat on . CPAs can increase billings by catering to exiting baby boomer business owners. Baby boomer businesses may represent a material percentage of a CPA firm’s client CPAs can increase billings by catering to exiting baby boomer business owners. Baby boomer businesses may represent a material percentage of a CPA firm’s client Rating: 0
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Exit Strategy and Opportunity

CPAs can increase billings by catering to exiting baby boomer business owners.

Baby boomer businesses may represent a material percentage of a CPA firm’s clientele. As a record number of these business owners begin the succession/exit process, hidden opportunities exist for firms to increase billing, if you know how to spot them.


Exit-FreedomA number of resources estimate that 10 trillion dollars will change hands over the next several years as a growing number of baby boomers sell or otherwise transfer business ownership. CPAs have a unique opportunity to provide needed guidance to these business owners. This article provides ideas to help CPAs and other valuation professionals assist retirement-minded business owners prepare for a successful exit from business.

Aging. It happens to the best of us. Along with the aging process come thoughts of retirement. Retirement for business owners can be complicated, especially for those whose succession plans get derailed by unforeseen circumstances. While some owners will successfully gift ownership to family or otherwise transition their businesses to management, it is estimated that the majority of businesses will ultimately be offered for sale to an outsider.

With the ever-increasing supply of businesses coming onto the market as boomers retire, price multiples for businesses may decrease (increasing supply lowers price). Only well-prepared businesses will sell, and only the best prepared businesses will command the highest price multiples.

“In excess of 10 trillion dollars will change hands over the next several years as a growing number of baby boomers sell or otherwise transfer business ownership.”

Unfortunately, many CPAs and their clients get trapped in the same old routine: accounting, preparing financial statements, tax planning, tax preparation—and the cycle begins again. The compliance and reporting services are critical, but so is proactive planning. Time simply gets away from us, and then one day the realization hits: there were things that should have been done years before the client decided to list the business for sale.

CPAs and Certified Valuation Analysts (CVAs) should take every opportunity to talk to their clients about their exit options and implement a strategy that will interest prospective buyers and assure lenders that financing is viable. Trusted advisors should bring up the subject as part of the annual meeting. On a personal note, I realize that owners are resistant to spending money on business planning. In my former life as a practicing public accountant, I often broached the topic of exit planning; clients didn’t want to spend money on the service. In my opinion, times are changing and waiting is no longer an option. Clients need to understand the significance of the baby boomer mass exodus and how that may impact the value of their business. I believe that we must explain how the price they may receive—not all businesses sell—for their business will be determined based on two factors: a) market competition (an excellent time to talk about the baby boomer mass exodus); and b) the cash flow, growth opportunities, and general condition of the business when it is put on the market (a great time to talk about unexpected exits due to illness, changing family circumstances, etc.).

1. The following are a few basic tips and observations for CPAs and CVAs working with business clients who are in their 50s and older:

Does your client:

  • Have a retirement date in mind?
  • Have a succession/transition plan in place with employees, family members, etc.?
  • Know what their financial needs are going to be when they retire?
  • Plan on trying to sell the business?
  • Have a price in mind?
  • Anticipate a realistic price within the market place?
  • Understand the after-tax consequences of a sale?
  • Know the price for which the business could be sold today?
  • Need a business valuation?

2. Do more than just talk. Once you understand your client’s goals:

  • Discuss options to achieve those goals.
  • Get your client to “buy” into the actions.
  • Identify housekeeping chores that need tending to (update systems, technologies, etc.).
  • Offer valuation services. Either perform services in house or refer them out. Your clients won’t know how to reach their end goal without knowing where they stand now.
  • Position yourself to monitor your clients’ progress.
  • Actually monitor and provide timely feedback.

3. Discuss with your clients the need to “clean up” depreciation schedules. While this doesn’t seem to rank high on the list of accounting priorities, a clean, detailed depreciation schedule ranks extremely high when it’s time to sell the business! All too often I see “current” depreciation schedules listing assets that are no longer owned by the business. Further, the depreciated value is not the fair market value of the machinery and equipment:

  • Buyers and lenders want to see the list of assets a company owns currently; not what was owned years ago.
  • Incorrect depreciation schedule asset listings can leave doubt about the validity of other accounting records.
  • Doubt about asset records will increase a buyer’s risk perception (reduces perceived value).
  • In the long run, the client’s investment in cleaning up the depreciation schedule/asset records will ease the due diligence process and build confidence that the “house” is in order.

4. Clean up your client’s balance sheet classifications:

  • Segregate non-operating assets and liabilities from operating assets and liabilities.
  • The segregation of operating and non-operating items can be extremely important when a potential buyer (and their advisors) evaluate the business.

5. Explain the importance of annual financial benchmarking. Your clients must know where they are now before they can take steps to get where they want to go. Financial benchmarking can pinpoint how the business stacks up compared to their industry peer group; for example:

  • Worse than the industry peer group (may indicate lower than average valuations)
  • Equal to the industry peer group (may indicate average pricing multiple), or
  • Better than the industry peer group (may indicate an above average pricing multiple)

Once you’ve had a chance to review the benchmarking data:

  • Communicate the results and provide advice on how the client can make improvements.
  • Remind your clients that the business that performs better than the industry peer group will most likely receive a better sales price when it’s time to sell.

6. Discuss with your clients their policies about writing off discretionary business expenses:

  • Does the business ownership push the envelope when it comes to tax write offs?
  • Report all cash sales.
  • Avoid excessive expensing of fringe benefits; this is an important consideration in determining the value of a business.
  • Higher profits/owner benefit streams lead to higher business valuations.
  • Ideally, for three years prior to any attempt to sell a business, discuss whether the business ownership should reconsider the expensing policies of certain discretionary expenses.
  • Is the owner aware that a dollar of tax savings (from pushing the envelope on discretionary expense write offs) may cost the owner ten times the actual tax savings (by way of lower business valuation)?1

7. Many types of construction, contracting, and manufacturing businesses have work in progress and unbilled profits that are routinely never recorded on the balance sheet. The owners tell their CPAs or CVAs that the unbilled work in progress is immaterial or that it will wash out next year. However, if the business owner were going to sell the business…would the work in progress and unbilled profits be counted, or would they just be given away?

  • Inquire as to the nature of how and when the business invoices for jobs/work in progress.
  • For unbilled work in progress, consider material costs, labor costs, overhead costs, and percentage of profit earned but not yet billed as of a balance sheet date.
  • While the unbilled work in progress may not change tax reporting conventions adopted by the company, the unbilled work in progress should be accounted for at least annually and reported on book financial statements; it can account for significant portion of business sale price. Yes, this can all be accounted for when an owner decides to sell, but business history matters to a buyer…and to the buyer’s lender.

8. CPAs and CVAs need to realize they may lose their business clients following the sale. Then again, solid execution and communication may lead the buyer to remain with the advisor that is able to execute. Recently I spoke with a CPA firm that expressed disinterest in trying to help their business clients prepare for an eventual sale. They didn’t want to lose their client base; proactive advice is what is needed, not avoidance. The reality? Clients are going to sell and move on with their lives. As the old saying goes, “You can be part of the solution or part of the problem.”

In summary,

  • Baby boomer businesses may represent a material percentage of a CPA firm’s clientele.
  • Baby boomers will be disposing of their business interests.
  • CPAs and CVAs can increase billings by learning to cater to their existing baby boomer clients.
  • CPAs and CVAs can be instrumental in helping business owners improve the value of businesses.
  • CPAs and CVAs who are actively involved in business transition planning have a good chance of retaining the selling business owners after the sale by providing other services and gaining the new owner as a client, as well.

The foregoing are but a few value-added services CPAs and CVAs can provide to their clients. The business that is best prepared often sells first—and for the best price. By becoming involved a few years ahead of time, you can play a big role in your client’s successful exit from business.

Grover “Grove” Rutter, CPA, ABV, CVA, CBI, MAFF, is a founding partner in Grover Rutter Mergers, Acquisitions & Valuations located in Findlay, Ohio. Grove is a CPA, ABV, CVA, CBI and MAFF who focuses on the valuation and sale of lower middle-market businesses. He has written and published three business guides and numerous articles concerning business valuation and preparing businesses for sale. In addition, Grove is also a public speaker whose audiences include business owners, lawyers, domestic relations magistrates, rotary clubs, and chambers of commerce. Grove’s e mail address is grutter@gruttercpas.com.

1Example: $50,000 in aggressive write offs, at a 40 percent tax rate, decreases the tax bill by $20,000. However, if the current market multiple for this type of business is 4X SDE, the reduction in indicated value is $200,000. This may be an extreme example, but it demonstrates a point.

The National Association of Certified Valuators and Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines.

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