The Accountants’ Vital Role in a Business Transition Strategy

When a business owner plans to transfer control of their business to someone else, they typically lean on their close relationship with their accountant. This is where the transition strategy comes into play, as the accountant or trusted advisor can offer valuable guidance and objective insights during a highly emotional process.

An advisor will encourage a healthy amount of communication and help deter escalation and emotional heartache during leadership transitions. They will bring creative solutions to financial decisions, help identify potential business and financial statement risks, and bring an outside perspective without the emotional tie to the business.

Having as much time as possible to prepare for your transition is key to success. Your accountant should be brought into the conversation early as there may be critical financial and tax considerations throughout the process.

Four-step transition strategy

Step 1: Find out what matters to you

Talk to the people closest to you (family and friends) and identify your true desires for the next stage for you and your business. Visualize what role you want to play in the process and the role you see yourself in the future. Your goal might be monetary, or it might be more emotional and fueled by the legacy you’ll be leaving behind. Maybe you want to retire in the Bahamas, or maybe you want to maintain a board position.

Depending on your goals, your accountant can also help you consider creative exit strategies, such as leveraged buyouts, tax deferred installment sales, phased stock sales, or employee stock ownership plans (ESOP).

Step 2: Pencil out your ideal situation

If you could make the perfect transition, what would it look like? Define your role, your timeline and even your compensation. This will give you an outline to refer to when it comes time to approach your prospective leader(s) and announce your intentions for the business.

Step 3: Identifying skill and passion

Approach your ideal candidate, and remember that they may have different goals. While you may have the ideal candidate in mind, that person might not initially have the intention or passion to take over and successfully lead the business. Perhaps there is an internal manager who needs leadership training and development before assuming the role.

This step will likely take some time as your candidate will need to possess both the skillset and the passion to make a successful transition. Having three years to invest in mentoring, skills training and preparation is ideal for setting the candidate up for success.

Step 4: Piecing it together

At some point, your candidate should take over more day-to-day and operational responsibilities. Now is a good time to announce the transition plan and present your exit strategy to the business. If you’re accepting outside capital or investments, make sure there is cultural alignment to maintain the trust and integrity of your employees and business partners.

Transitioning your accountant

Even if your advisor has been with you for generations, that relationship might not be the best choice for your business going forward. Generations grow up with different perceptions, life values, and ways of managing and leading a business.

For example, business owners in their 40s generally aim to retire earlier than the baby boomer generation. The same generational differences apply to the accountants that have become that business owner’s trusted advisor. It’s essential to allow your successors the freedom to build their bonds and to encourage them to find an accountant that shares their unique perceptions and values. Allowing each party to have their advisor will give a sense of comfort and confidence that they have someone on their side and representing their financial interests.

Successful Business Transition Requires Vision, Ingenuity, and the Right Advisors

Growing a business is much like raising a child. It takes ingenuity, hard work, consistent performance and lots of communication to reach your goals and turn your vision into a reality. Passing that vision to the next generation is mentally and emotionally difficult, but having the right advisors on your side can help you prepare and execute a transition strategy that will bring you, your successor, and your business future success. Contact us if you are planning a transition and need help.