Alyssa Hodges, CPA, CVA contributed to the NH Business Review this month for their Ask the Experts section on Succession Planning.
"Q: What role does an accountant play in the early stages of business succession planning, and when should business owners engage your firm in the process?
A: As accountants at Mason + Rich, our goal is to be more than compliance partners. We work with business owners to help establish or understand what drives value in their business. Understanding what drives value, whether it’s revenue growth or other performance metrics, helps establish informed decision-making. Ideally, this mindset should start early, but it’s never too late to begin.
"Q: What role does an accountant play in the early stages of business succession planning, and when should business owners engage your firm in the process?
A: As accountants at Mason + Rich, our goal is to be more than compliance partners. We work with business owners to help establish or understand what drives value in their business. Understanding what drives value, whether it’s revenue growth or other performance metrics, helps establish informed decision-making. Ideally, this mindset should start early, but it’s never too late to begin.
For example, if the value is based on revenue multiples, investing in marketing or additional staff may yield the best return. If value is tied to Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), strategic investments in equipment or efficiency may be more beneficial.
We also help clients understand normalization adjustments that impact valuation, such as adding back above-market owner compensation or other non-recurring expenses. When business owners understand these adjustments, they gain a clearer picture of how their normalized financial performance impacts the value of their business.
Q: Why should you think about succession planning if you want to give your company to your children?
A: Giving a company to your children is not as straightforward as you may think, particularly with multiple children who might contest the gift or may not see eye to eye. There are a few different options for moving your business to the next generation: gifting, inheritance or a sale.
When you have multiple children, particularly some who are not interested in running the business, it can create difficulties moving your business to the next generation — especially the children who are not involved, who often believe they are entitled to an equal share. Depending on your goals, there are ways to transfer your wealth in fair, equitable ways. One of those ways is to have a valuation of your business prepared, which establishes a fair price. Once the value is established, there is a baseline for selling your business to your children and/or allocating other aspects of your estate to your other children of similar value.
It’s also important to plan for the unexpected. Establishing your business with a clear succession plan is crucial to ensuring it transitions to the family members you wish to inherit it. For example, without a well-defined plan, your children could inherit your business equally, even if they aren’t interested in running the family business. With proper planning, business values can be established and agreements, such as a buy-sell agreement, can be put in place to ensure a smooth transition of ownership."
You can find the full article in print form as part of their current issue or find it online here (pg. 22)
We also help clients understand normalization adjustments that impact valuation, such as adding back above-market owner compensation or other non-recurring expenses. When business owners understand these adjustments, they gain a clearer picture of how their normalized financial performance impacts the value of their business.
Q: Why should you think about succession planning if you want to give your company to your children?
A: Giving a company to your children is not as straightforward as you may think, particularly with multiple children who might contest the gift or may not see eye to eye. There are a few different options for moving your business to the next generation: gifting, inheritance or a sale.
When you have multiple children, particularly some who are not interested in running the business, it can create difficulties moving your business to the next generation — especially the children who are not involved, who often believe they are entitled to an equal share. Depending on your goals, there are ways to transfer your wealth in fair, equitable ways. One of those ways is to have a valuation of your business prepared, which establishes a fair price. Once the value is established, there is a baseline for selling your business to your children and/or allocating other aspects of your estate to your other children of similar value.
It’s also important to plan for the unexpected. Establishing your business with a clear succession plan is crucial to ensuring it transitions to the family members you wish to inherit it. For example, without a well-defined plan, your children could inherit your business equally, even if they aren’t interested in running the family business. With proper planning, business values can be established and agreements, such as a buy-sell agreement, can be put in place to ensure a smooth transition of ownership."
You can find the full article in print form as part of their current issue or find it online here (pg. 22)
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