How Can Accountants Help Their Small Business Clients Plan to Sell Their Business?
From the perspective of a business broker, there are several areas where accountants can help their small business clients plan for the successful sale and transition of their business. A lot of the factors related to the sale of a small business coincide with good financial strategy. A small business accountant usually has a meeting with their client at least once a year for tax preparation. That is an excellent time to touch base with the client about their future plans.
What is their exit Strategy?
Most small business owners don’t think about their exit strategy when they start their business; but they should. How long do they currently envision owning and running this business? When will they want to sell, transition, or otherwise retire from the business? If they plan to sell the business as their eventual exit strategy, how much do they expect the business to be worth? These are all factors that affect short term and long term financial planning and tax planning. An accountant can add great value to their small business clients by asking these questions every year and helping guide them appropriately.
Accounting and management systems.
Small business owners don’t always know about the bookkeeping and financial analysis requirements that are crucial to their long term success. They are usually focused on growing sales and serving customers. Most small business owners don’t know how to properly read and analyze their financial statements; if they are even looking at them at all. Training clients to read financial statements and understand how future growth might impact them financially can be extremely helpful and may even avoid mistakes that could jeopardize the future of their business and assets. Sustained and profitable business growth is the biggest driver of the resale value of a business.
Financially preparing for a small business sale.
For obvious reasons, small business owners, and their accountants, often focus most of their efforts on avoiding taxes. Two to three years before the potential sale of a business, owners and accountants are encouraged to clean up their financials and focus more on showing strength in profitability and earnings. Small businesses are most often valued as a multiple of their earnings. Therefore, every additional profit dollar can equate to $2 to $3 in increased value of the business at sale. It is hard for business owners to understand that paying an additional $3,500 in taxes (on $10,000 of additional reported profit) can increase their business valuation by $20,000 to $30,000. But you can’t do it after the fact… you have to plan ahead.
Partnering with a qualified business broker.
A good long term partnership with a business broker can be beneficial to all parties. A business broker can help answer questions for the client and accountant in the areas of business valuation, current market trends, and timing. The broker will likely provide these services free of charge to the accountant because they will expect to earn a commission down the road from an eventual sale. The broker will also benefit immensely by having all of the financials properly prepared and documented when they begin the sales and marketing efforts. Many deals fall out of escrow during the due diligence (book check) portion of the transaction due to a seller’s poor accounting and records.
The accountant benefits by providing additional professional insight to the client, free of charge, that can create added value, client loyalty, and referrals. In addition, the business broker will have a lot of contact and influence with the business buyer. The new owner will need an accountant and the broker will definitely encourage the client to remain with a capable and cooperative accountant. A true win, win, win!
In summary, small business accountants can provide extreme value in helping their clients plan for the eventual sale of their business. Don’t just let small businesses be tax preparation clients. Ask questions about their future plans and bring in a business broker, as appropriate, to help understand how financial decisions and preparation can affect them down the road when it is time to sell the business.
