Why Your Clients Deserve a Discussion About Succession Planning

It's easy to take a successful business for granted, in spite of statistics that reveal success is an infrequent, and often short-lived, occurrence. For example, the average life expectancy of a family business is only 24 years. Only three in 10 family businesses survive to the second generation - and only one in 10 makes it to the third generation. When you consider that 75 percent of all businesses in the United States are closely held entities (accounting for more than half of the Gross National Product), it quickly becomes evident that there is significant need - if not opportunity - for succession planning.

As trustees of our clients' personal financial data, our strongest professional asset may be our status as most trusted advisor. Because our clients (hopefully) respect and appreciate the advice we provide, we hold a responsibility to discuss with our business clients an orderly process by which ownership and management can be transferred in a tax-effective manner.

Consider another important fact: your client's business is likely to be his or her single greatest asset and source of retirement income. Whether business owners like it or not, succession - or at least some exit strategy - must be developed to maximize their most valuable asset.

Why Should the CPA Be Involved?

Beyond the obvious - protection and preservation of a long-term client relationship - the reasons why CPAs should be involved in the succession process are as diverse as a public accounting firm's client list.

First and foremost, consider the value of additional consulting income to your practice. Our hair has thinned over client "negotiations" regarding the value of preparing tax returns or other compliance engagements. Yet these same clients may be quite willing to pay 10 times that for services they feel will protect them and their wealth. Perceived value is the key. Since succession planning is a very personal, very customized consultative service, it is far less likely to be viewed as a commodity. Of course, that does not mean that the cost of such engagements will make for a fast and easy sell. However, if successful, the CPA has an opportunity to create real value that translates to higher dollar returns on your time.

With all the editorial ink spilled in the last few years regarding why CPAs should morph into consultants/saviors, the role of succession advisor is certainly an important and attractive one. The reason is simple: the succession advisor is the gatekeeper to fertile ground in terms of potential consulting engagements. Even if you do not wish to be in the consulting business, taking a leadership role in the process means at the very least new referral sources, and most likely fee revenue from service referrals from attorneys, bankers, insurance professionals, investment advisors and perhaps even other CPA firms.

Assignments vary based on each individual client's needs and weaknesses. They may range from estate planning issues (wills, life insurance, gifting, the creation of trusts, etc.) designed to move assets and minimize tax exposure, to specific transition issues such as developing compensation plans for siblings and parents as the transition moves ahead. From creating a business plan, to establishing a family council, to mediating ongoing issues, the list of potential engagements available to the CPA as a succession advisor is long and crosses over many areas of expertise. Other examples include locating buy-sell insurance (to help survivors fund transition ownership/payout issues), establishing investment savings programs and employment contracts, developing job descriptions, business planning, valuation services, life insurance, establishing family limited partnerships, tax planning and more. Much more.