pass torch

Succession Planning

Certified Public Accountants assist businesses in “passing the torch.”

For any business owner, thinking about a proper plan for succession is vital to not only ensure that the future of a business is secure and prosperous, but also that the health and well-being of his or her loved ones is secure. What makes it so crucial to plan for the future, what steps do business owners need to take and how can Certified Public Accountants (CPAs) assist them in planning? In this article, New Jersey Business takes a look at these questions and more, in an effort to “pass the torch” and keep companies thriving.  After all, the word succession does start with “success.”

Turning to CPAs for Guidance

CPAs can help business owners in a myriad of ways when planning for succession and when looking to sell a business. According to Toni Klimowicz, CPA and partner at Bederson LLP, it all starts with building strong relationships with clients.

“I think the stronger the relationships are, the more trust clients will have in you and the more willing they are to let you guide them and point them in the right direction,” she says. “The bulk of our client base is small, family-owned businesses. It’s not just a business relationship. You get to know the fathers, mothers, kids and when the kids start having kids. You really get a good feel for the whole family as a group. And because of that, they feel more comfortable in turning to us for advice, as far as what to do with the business, especially if the next generation of family is going to become involved.”

“It is the CPA’s role to understand the dynamics of the ownership of a company, the family and the needs of the entire group,” says John Witkowski, CPA and partner at WeiserMazars LLP. “We should be integrally involved in making sure that what should be happening is happening. And, we need to come up with creative ideas of how to make an ownership transition occur as smoothly and efficiently as possible.”

Not only do CPAs need to establish strong relationships with their clients, but they need to get them to think about the future, because business owners are often focused on the present and on running the company.

“A lot of our clients are so busy thinking about their day-to-day business that I think it is our job to stop them and make them recognize that they need to start thinking about what will happen when they retire or are not able to run the company anymore,” says Alex Narcise, CPA and partner at Wiss and Company. “It is important that we have regular communications with them and discuss: that there will eventually be a transition; how to handle that transition; and what decisions have to be made.”

“Business owners don’t even focus on it unless you bring it up,” WeiserMazars’ Witkowski adds. “I don’t know how many times I’ve started to work with a new company – when there might be two or three owners – and there is no mechanism in place if something happens to one of them. What happens to the company? It’s like helping a client draft a will. No one ever thinks they are going to pass away, so they don’t bother with it. They don’t want to address their mortality, so they don’t want to talk about it. When I pick up a company, it is one of the first things we discuss.”

Succession Strategies

So what decisions do business owners and their families have to make and when do they need to make them? According to Bederson’s Klimowicz, every situation is different, so CPAs need to make sure they sit down with clients to keep discussing their succession plans over the course of many years.

“We ask them, what do you think your business is worth? When are you looking to retire or sell? Who do you think is going to continue the business after you’re gone? … You need to start that when the business owner is young, viable, active and fully functional. You don’t want to wait until you are on the doorstep of retirement to then say, ‘Oh, now what do I do?’ That is a little late, because you never know what can happen.”

Then, it can depend on the family situation, or, what type of business it is.

“It can be a business that the father or mother started, and now their kids are working with them,” Klimowicz says. “So the kids may be next in line to take over the business.”

But what if a business owner does not have offspring or other relatives? What if the family wants no part in running the business?

“It can be someone who doesn’t have any children or other family in the business and he or she is going to be looking to sell,” Klimowicz says. “Or, you can have two or three partners who are not related. How are they going to balance taking care of their families after they are done in the business? So every case is different and unique and it is our job as CPAs to help our clients manage it.”

One key aspect of running a business and building wealth for succession, whether it’s a family or a third-party sale, is to make sure an organization can sustain itself if an owner is incapacitated or is no longer around, according to Robert Devine, CPA and partner at SaxBST.

“When a business has value, as an ongoing concern that it won’t be devalued in any way because the owner is no longer there, it is important to have the proper people in place to keep the company moving forward,” he says. “A CPA has to force ownership to look inward to make sure they have the right talent as companies grow. Many times, people get so comfortable when owning and operating a business that they create an entitlement mentality within their organizations. In being an outsider, a CPA can clearly be more objective about the skill level that exists in an organization right now, and what is needed to get it to the next level. Therefore, a strong succession plan creates options in value for the business. The business doesn’t have to be sold if something happens to the owner, for example. It can go on and create better value for the estate, for the family, or for the other members of the partnership.”

Paul Peterson, CPA and managing partner at Wiss, shares the notion that it is important to groom the proper talent, so the company “doesn’t skip a beat” during a transition.

“A sale would go smoother if the business leader develops the people that are working with them,” he says. “If they spend time developing these people and workers, then they would be better prepared for the transition. If they don’t, they may need to bring someone in to manage day-to-day operations.”

Once CPAs fully understand what a business owner’s position is as to how they think they are going to eventually transfer to the next generation or sell, what are the next steps in the process?

“Once we decide on a direction, then we can start bringing in other professionals, like an attorney,” Bederson’s Klimowizcs says. “They may need life insurance, because if a business owner passes away, for example, and has a partner that wants to buy the remainder of the business, where is he going to get the money? Or how is the family going to be able to pay to continue to run the business or find someone to run it for them? The proceeds of that life insurance would help in those situations.”

An attorney would help create a buy-sell agreement, which is a contract that lays out the groundwork for the future sale of a business, specifically to a partner within a company, or a third party. Within the terms of an agreement, a business owner and the buyer would enter into a contract for the transfer of the business based on a specific event. Typical events include retirement, death and disability.

“Buy-sell agreements should be established early on in the lifetime of a business so that there aren’t any disagreements as to what should and would happen if an owner or co-owner is not involved anymore,” SaxBST’s Devine says. “The agreement would also provide a valuation to determine how much a company is worth for estate tax purposes, among other things.”

Additionally, a Certified Valuation Analyst (CVA) assists in the business valuation process to determine the worth of a privately held business or an individual’s partial interest in a company.

“A CVA is typically a CPA who has gone on with further education and has gotten further accreditation,” Klimowicz says. “They do research within the industry to see how a company compares to other types of similar businesses within the same region. There are all kinds of formulas and then there are all kinds of IRS regulations that guide the way to determine what the value is. It can be based on revenue, income and capitalization, for instance. For a business owner to say, ‘I’ve worked really hard all my life, I think my business is worth $1 million,’ that isn’t going to hold up in a court. So you need some documentation.”

Additional Challenges and Issues

Every business transaction faces certain challenges and issues, no matter if handing the company over to family, or selling to a partner or outside party. However, selling a family business and creating a succession plan can carry more weight than a traditional transaction. It is just a matter of preparation and facing it head on.

“In reality, if a family is a cohesive unit, it is much easier to close a deal or hand down a business,” WeiserMazars’ Witkowski says. “If a family is always fighting and arguing about who is going to take over, or how much they want to sell the business for, or to whom they want to sell to, it becomes more challenging. Even between co-owners or business partners, major conflicts can arise. Emotions and histories play a big role, which is why often times, it can be easier to deal with a third-party sale.”

Alex Narcise, CPA and partner at Wiss and Company, says, however, that there can be emotional issues when dealing with third-party transactions as well. “You are going to have those issues selling to an outsider, because many, if not all owners, will have an emotional attachment to a business if they have been running it for most of their lives. And then, when you are selling, it becomes sort of a negotiation, and that can take a lot out of someone. I think there has to be more of an equal exchange, if you will. There is give and take on both sides.”


As mentioned, Bederson’s Klimowicz asserts there are a countless number of situations when creating a succession plan and every case is different. However, “it is the job of a CPA to help facilitate the succession process and aid business owners and their families.”

Business owners need to sit down with their advisors, let them know exactly how they feel and what they want to happen to the future of their company, no matter how difficult it may be.

“As CPAs, we have an obligation in being trained on how to deal with risk and in bringing very sensitive topics to the table – ones that can adversely affect a business going forward,” Peterson of Wiss concludes. “If we have done our job correctly, our clients should have the trust in us to help deal with these topics, and more, in order to create a successful succession plan.”

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