By: John P. Napolitano, CFP®, CPA, PFS, MST

If your business clients are like the rest of America’s small business owners, they are probably getting to the point (age) where planning their exit from the business is a good idea.

Enter 2020 and the COVID-19 pandemic, and business sentiment is all over the lot.  Some are thriving like never before, and some whose trajectory hasn’t been positive for years have been accelerated into retirement, selling or failure.  Some who were thinking of retirement may have delayed that for both good and bad reasons, and some who thought they were in the saddle for another 10 years are saying no mas.

In general, we all know that it is best to plan an exit from a business for about 5 years before your desired date to be out. Sometimes the best laid plans do not come to fruition so we must also talk about the contingency planning that may be needed in case your client does not reach the exit ramp.

The best way to start this conversation with your best clients is with a few good questions.  Ask your client what would be their desired way out of the business, assuming that they are healthy until the day they want to stop work.  It is common that your clients don’t have an answer to this question yet. Their first responses may be all over the map. You’ll hear some clients that want to pass it down to a next generation, others want to sell to their key people, a sale to a third party, and some that simply cannot give you an answer.

To prod the discussion, a conversation about contingency or succession planning may be in order. We all have clients thriving in the saddle into their late 70’s just because they can’t decide what else they’d rather be doing. But even the work forever clients shouldn’t pass on the opportunity for you to help them plan a graceful exit for themselves, their stake holders and their customers.

To get them thinking about the long term, let’s have them focus on the today.  Ask them what would happen if they didn’t wake up for breakfast tomorrow? It is likely to be a similarly scattered answer to their planned exit, but force them to really wear this problem now.  Remind them there is no opportunity to be revived from death to do this after they’re gone, and there is no time like the present.

Literally start with tomorrow.  If you were gone, Ms. Client, who would sit in your seat tomorrow?  These operational issues need to be addressed to avoid a fire drill, or worse if the unthinkable happens. There should be a clear plan regarding who does what.  There may be some promotions and some unhappy campers, but it is what it is until you and your client figure out the contingency plan.

The contingency plan should start with the people who will need to step up in your absence. You should help craft job descriptions for these people and make sure that all of your client’s former responsibilities are assigned. Don’t let your client get hung up in the “no one can do this but me” type of thinking.  We now have no choice here buddy… we need an answer as if you died yesterday. This will help your client start thinking about all of the things they’d need to tend to in the ordinary course of a five year exit plan. This thinking can lead a business owner to let go of some day to day responsibility with the end result a more efficient business that ultimately becomes even more valuable. 

Now that you’ve identified the successors from an operational and management point of view, think about the compensation structure of your replacements.  How much of a salary bump should they receive?  Should their bonus schedules be re-arranged to accomplish whatever your client has stated as their post mortem desires? Many buyers want to see continuity, so if your client is dead or alive and willing to continue work, the buyer is typically looking for certain key people from your clients business to assure an orderly transition to new ownership.

If your client’s objective is to sell the business after his or her death, then there should be some sort of bonus for your key people that help consummate the transaction after your passing.

At this stage, your client should begin to have conversations with those who may play a role in succession. After agreeing on what makes sense for all, your client should utilize employment agreements with non-disclosure and non-competition language within.

These agreements should also specify what happens in the event of the owner operator’s disability. There should be a short term plan addressing the day to day and language to include the longer term plan if the owner is never able to productively return to the business.

Your options regarding how the business would succeed you are endless.  What is not good is having no plan.  Once a plan is agreed upon and documented, the communication part of the plan should begin.  There are probably others in the company who wondered what would happen if your client couldn’t run the business. This includes employees, key customers, lenders and anyone else who would be an asset to your business beyond you. Business owners frequently fear these conversations. The reality is, however, that being transparent and honest about having addressed the issues that they pay you for advice.

Once the wheels start spinning and the continuity and succession conversations have happened, it is time to turn your attention to the normal or desired glide path to exiting the business. This is both harder and easier than having the contingent succession conversations. It is harder in that there are more variables such as the economy, trends in your industry, timing and unexpected events like COVID that may alter the ultimate time frame. But it is easier in that it is work in process where the goal is progress, and not perfection.  That progress started already by solving the contingent succession possibilities.   

Preparing a client to exit their business within five years is ideal.  Buyers will want to see three complete years of financial records and the current year to date.  The five year head start gives your clients two years to clean things up.  Whether it is balance sheet clean up or efficiency gains or acquisitions – their time should be devoted to the things that they can do in the next two years to make their financials and trends look as good as possible three to five years out.

It is never too soon to develop a good vision for what the actual exit plan looks like.  Is it a strategic buyer, a financial buyer, a roll up of similar companies?  Are they buying gross revenue, net profits, cash flow or assets?  Depending on your clients’ industry, the valuation metric can vary dramatically.

If the CPA financial planner can help the client understand the valuation metrics and help guide their activities to the desired end goal, your clients will be grateful.  This type of guidance may well be beyond the scope of many planners, so your job would really be defined to make sure that your clients understand the importance of their activities over the next few years and to see that they get the advice they need.  Whether that is another hire to beef up their staff and capabilities or the right consultant who can be hands on help to get to point B, whatever that turns out to be – this is the starting point.

This is also a good time to help your client think about life post sale.  What will they do with their 168 hours without the obligations formerly devoted to the business?  Help your client envision this life plan, for the next stage of life along with the financial obligations it will require.

Rarely does a client sell their business and go directly to the palm tree.  There are frequently lingering obligations that can last anywhere from 90 days to a few years.  The time commitment post deal will be tied to the financial arrangements and the depth of the team you’ve built.  If you have a great team where many of your day to day activities have been replaced, then your stay on requirements may be less.  Sometimes there are contingencies or earn outs related to the sale.  In this case your client may be forced to stay on for a longer period.

Another part of the future plan is the financial plan.  Regardless the size of your clients’ liquid reserves, there is always the need to help them map everything from their spending to the estate plan. Ideally this has been happening for your client all along, but that isn’t always the case.  They probably have a collection of financial professionals; lawyers, insurance agents, investment advisors, banks, etc. and have wills, trusts, business documents and so on.  But sometimes not!  And very frequently for those with documents, we find gaps where the estate documents are old or inadequate or the titles and beneficiaries to assets are not optimal. You will find plenty of evidence that no one is overseeing the entirety of the financial plan and there are likely to be gaps in all areas.  This is where a good CPA financial planner can step in and turn good client relationships into great, lifelong relationships.


John P. Napolitano CFP®, CPA is CEO of U. S. Wealth Management in Braintree, MA.  Visit JohnPNapolitano on LinkedIn or The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200. 

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