Succession Planning
Case Study

Building value in a company is essential.

Succession planning should be a formal process and not a surprise, which will help mitigate risk and protect value.

Smith Schafer Approach

Smith Schafer reviewed the goals and concerns with the client, including a timeline, buyer options, etc.
Note: A buyer for a company generally comes from three areas:

  1. Family members (sons, daughters, or other relatives) working for the business or not
  2. Employees working for the business
  3. Outside buyers
succession planning questions

Do they have the knowledge base to operate the company?
Do they have the financial ability to purchase, or must the seller provide seller financing?

Then we began evaluating items on their balance sheet, including cash, inventory, prepaid expenses, fixed assets, etc. We asked questions such as:

  • Cash. How much cash is necessary to operate the business?
    Value Tip: If there is excess cash, consider how to get it to the current owner.
  • Inventory. Is it organized so employees can quickly locate what they need? Is there obsolete or slow-turning inventory which can be scraped or sold for cash? Is the inventory listed and priced? Do we maintain a perpetual inventory system that is updated daily by our point of sale system? Is inventory counted and adjusted at least annually? Is this asset worth more to you or the buyer?
    Value Tip: Consider a “Just in Time” inventory approach where the product comes in shortly before needed.
  • Prepaid Expenses. Have we tied up cash in these expenses because it is easier than dealing with this expense more often? Have we discussed the approach with our vendor to pay more often on an automatic payment plan?
  • Fixed Assets. Are all of the assets necessary to operate the business? How long has it been since the owner looked at the depreciation schedule? Are the assets maintained, or is their apparent deferred maintenance?
    Value Tip: Consider selling fixed assets to generate cash for the business rather than leave the value for the buyer.
  • Other Assets. Are there other assets on the books, such as loans to employees? Are there other assets that should be liquidated?

Then we evaluated their accounting and determined a selling structure. We asked questions such as:

  • Bookkeeping. Is the company reconciling bank accounts and other general ledger accounts at least monthly? Are monthly financial statements prepared internally or externally? How quickly after a month-end are the financial statements available?
  • Selling Structure. Should we consider an asset sale or stock sale? If a stock sale, is it because significant contracts with customers or vendors cause it to be impractical for an asset sale? Should a business valuation be prepared so the seller has an idea of what the company may be worth? Is it a leveraged buyout with family members or employees? If an asset sale, what assets are excluded? What is the difference in the sale price of a stock sale vs. an asset sale? What are the tax implications to the seller for a stock sale vs. an asset sale structure?

Results

The succession planning evaluation allowed Smith Schafer to provide specific recommendations on building value in the company and determined an approximate value of the company before selling. Value discussions were critical before negotiations with the potential buyer, so the seller did not commit without knowing the facts that could impact the final deal.

The company had control systems and operational policies in place, along with organized books and assets. This presented an organized company and helped sell for a higher price. Greater organizational stability and resilience breeds market confidence and drives value.

Why Clients Choose Us

“We have worked with Smith Schafer for over 45 years. They have been great to work with, from wonderful administrative support, tax staff, and CPAs. They have supported us for years with our financials and mergers/acquisitions. Always there to help!”

 - Washburn McReavy Funeral Chapels

“Our service is always exceptional and never have to second guess the answers.”

 - EnergyPrint, Inc.

“Smith Schafer has provided second to none service and value to my business and personal accounts for over 30 years. Their expertise and knowledge are unmatched by any other accounting firm I have encountered over all these years.”

“The relationship we have built over the years with the staff at Smith Schafer & Associates is one that can never be replaced. They are quick with helping us figure anything out, always willing to pick up the phone and walk us through any problem we are having. Also they are just all so friendly and kind!”

I have worked with Jason Boynton for several years. He has consistently provided exceptional service and advice always delivered in a timely, pleasant manner.

“Smith Schafer always makes everything go smoothly. They were recommended to us by our community bank. We have been using their services for many years for our small business and personal taxes. We always feel well taken care of and that we are receiving the best advice, direction, information and tax preparation."

- The Dog Perk Corporation

“Smith Schafer always provides great information for our business. They are thorough with our accounting and financial planning. We have leaned heavily on them with an interpretation of the PPP Loan and COVID-19 planning. They have been instrumental in our success and are always very knowledgeable and quick to respond to any of our questions."

Smith Schafer has provided second to none service and value to my business and personal accounts for over 30 years. Their expertise and knowledge are unmatched by any other accounting firm I have encountered over all these years."

“The relationship we have built over the years with the staff at Smith Schafer is one that can never be replaced. They are quick with helping us figure anything out, always willing to pick up the phone and walk us through any problem we are having. Also they are just all so friendly and kind!"

“We love our CPA team at Smith Schafer. They have helped us navigate many personal and business decisions."

“Smith Schafer is very dedicated to their clients and always has their best interests in mind. They are very knowledgeable and thinking ahead to what the clients may be needing in the future. We would highly recommend Smith Schafer to our family and friends."

"Always fast, great service and questions answered. Love the people I work with at Smith Schafer. We've been there so long, it's like working with family."

- MotoProz, Inc.

"Smith Schafer is always responsive and in the know about what is important for me and my business. The team is responsive and professional with all my interactions. Very customer-focused."

- Custom Communication

"The people at Smith Schafer always take great care of me. They are so knowledgeable and provide great advice and support."

- Sound and Media Solutions, Inc.

 

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