March 10, 2022   //   Business Consulting   //   By PKF Mueller Solutions


By Bri Tyler, Senior Manager, PKF Advisory

Business owners and individuals frequently invest in personal financial planners to manage their liquid wealth (cash, marketable securities, market portfolios, etc.) and are willing to pay a price to have Certified Financial Planners (CFPs) manage and maintain a reasonable return on their investment. So, why shouldn’t business owners consider investing in the management and maintenance of a reasonable return on their illiquid wealth: their business?

In his book, Unlocking Private Company Wealth, author Chris Mercer quoted a study performed by Carey McMann at SME Research that reads, “37% of businesses have owners with ages of 55 years or older.” In fact, this 2002 study concluded that perhaps 20% to 25% of all businesses in America will be sold or otherwise change hands over the next five to ten years.

Establish a Timeline

Strategically implementing a timeline is the key to keeping you and your business on track for a successful transition. Do you have plans to reach full retirement in 5 years? If so, establishing a timeline that includes preparing for sale, setting benchmarks for the company, and transitioning clients post-sale will not only keep your objectives top of mind, but will allow you (the business owner) to retire on time. You are embarking on a process, not an event, and you will be surprised at how long it takes to divest from the company.

Create a Circle of Influence

A circle of influence is a group of hand-picked advisors who will educate you as you begin to transition. This is the team you want to have sitting next to you when making important business decisions. Your circle of influence should include the following professionals: an attorney, CPA, banker, business appraiser (valuation specialist), and business broker.  If you don’t have one of the following professionals, it is suggested that you reach out to your network or find one that you trust and can add to the team. These professionals will be vital in ensuring that you are maximizing the business’ potential and avoiding unnecessary complications. Before you succumb to sticker shock, remember you can hire these pros by the hour and limit the scope of their involvement, if necessary.

Draft a Buy-Sell Agreement

A Buy-Sell Agreement is a legally binding contract designed to deliver a detailed agenda for how the remaining co-owner(s) are to carry on in the event a business owner leaves the business. All closely held businesses should adopt a Buy-Sell Agreement among the partners or shareholders. Costly litigation battles can be avoided if, in the beginning, the business owners would address the issue of a Buy-Sell Agreement in their operating or LLC agreements.  Between your attorney and your CPA, a well-drafted Buy-Sell Agreement should be put in place. An appropriately constructed buy-sell agreement will address several important items including:

What events trigger a buyout?

  • How will a purchase or buyout be funded?
  • What are the terms and conditions for the buyout?
  • How is the company to be valued (i.e., fixed value, formula based, formal valuation, etc.)?

Know the Value of Your Business

Every business owner has an idea of what he or she thinks is the value of their company. However, have you ever tested your idea and received a formal valuation for your business? Valuation can and should be used as a powerful driver of how you manage your business and its subsequent changeover. You will be making strategic business decisions over the next several years to transition successfully and receive the best return on your business; be sure that those decisions are resulting in additional value to your company. Investing in an annual business valuation ensures you are on track and are aware of the fair market value of your illiquid asset.

Analyze Your Depth of Management

This is an important time to establish who in your company has contributed to the success of your business over the years. These individuals should feel safe and comfortable, and encouraged to stay employed with the company after the transition of ownership has occurred. If, over the years, you have remained the sole rainmaker in generating new business, it is suggested that you develop a role for someone who can join you in client-facing roles. It’s important your staff and your customers feel comfortable with ownership changes. This is a delicate process and should be handled with the care it deserves.

Monitor and Reassess Regularly

Succession planning is a process for identifying and developing new leaders who can replace old leaders when they leave. As the current leader, it is your responsibility to monitor and reassess regularly as changes are made in all areas of the business. Are customers warming up to the idea of change? How is employee morale? Are profit margins falling? Have your original benchmarks been met? Spend some time answering these questions and make the necessary changes to stay on track and on time.

The Takeaway

Planning will get you where you want to be.  Set yourself up for success by following the advice given.  In the end, your hard work will be rewarded.

Contact Us

Bri Taylor
Senior Manager
Tel – 253.830.5450
Email –