And what should CPAs be doing about them?
Sound Off: Take the poll. See the answers.
by Rick Telberg/At Large
Accountants are all too familiar with the succession issues faced by accounting firms. But accounting firms aren't the only ones with succession issues.
In fact, closely-held and family-owned businesses across the nation are facing a succession crisis of their own. CPAs are well aware of the problems their business clients face and are devising strategies to help.
Some four in five CPAs see "developing a succession plan or exit strategy" as one of the most important issues facing family business today, according to our new survey.
"Business owners understand their business but can forget about some important things like planning for retirement," said Peter Frank (pictured, left), CPA, in Dumfries, Va. "The succession plan is important but, just in case that plan radically changes just prior to retirement, business owners need to save for retirement while they are running the family business."
Akinola Dosunmu of Lincoln, Calif., suggests that companies build a business that doesn't depend on the owners to survive. "Family businesses are not as focused on longevity as they should be," said Dosunmu.
Many industry professionals agree. The Bay Street Group survey found that 81% of respondents believe that developing a succession plan or exit strategy is the most important issue facing family businesses today. More than half (63 percent) of those surveyed believe that grooming the next generation of leadership is the most important issue.
Family businesses are also struggling with ways to maximize profits (54 percent), find and keep qualified staff (52 percent) and generate more revenue (43 percent), according to the survey.
Establishing-in writing-a succession plan is vital. Without an exit plan, a company could lose its vision and, ultimately, the company could perish. Succession plans help guide the long-term future of a company.
Top 10 Issues Facing Family Business:
- Developing a succession plan or exit strategy
- Grooming the next generation of leadership
- Maximizing profits
- Finding and keeping qualified staff
- Getting more revenue
- Tax burdens and complexity
- Access to capital and financing
- Managing expenses
- Keeping up with technology
- Government regulations and cost of compliance
"Developing a successful exit strategy to maximize the economic benefit. The equity in a family business represents the â€˜retirement pool' for many business owners," said Brian Stafford, a senior wealth advisor in Charleston, S.C., when asked why he believes establishing an exit strategy is a critical issue.
Perhaps one of the reasons why family-owned businesses have yet to create a formal succession plan is because the next generation for leadership may be, in the eyes of some, ill prepared to take the reins or may not have the same work ethic or the same approach to business as their elders.
"In the longer term, I see grooming the next generation of leadership as most important," said "It is this area that sustains the legacy created by the family, yet today's generation doesn't always have the interest or see the benefit of business ownership."
David J. Anderson (pictured, right), CPA, of Minneapolis (whose trademark is: "Not your ordinary bean counters"), agrees that grooming the next generation of leadership is critical "because the younger generation may not or probably does not have the same approach to business as the founders of the business. This includes work ethic, quality control and customer satisfaction."
The good news is that CPAs are in an ideal position to help firms develop a succession or exit plan, as well as help them with other business needs. In fact, the research suggests that most family businesses (94 percent) do not take full advantage of their CPA's skills and services so those CPAs who are proactive in helping clients undoubtedly stand to benefit.
"Many CPAs do not take the time to fully understand their client's business. They need to do that in order to advise them on things other than taxes or routine accounting issues. They should be asking CPAs for input on maximizing profits and how to develop a succession plan," said Duane Tolander (pictured, left) of West Des Moines, Iowa.
"Counsel not only on tax planning ideas, but also advise on how to make their businesses more profitable. They should also be working together on generational transfers of businesses," said Robin L. Baum of Cleveland.
Viewing the relationship with a family business as more of a partnership may be an effective way to truly understand their challenges, opportunities and goals.
"There needs to be a periodic discussion of value provided by the CPA-not on each project or issue but from an overall perspective on the periodic basis. Both parties need to understand the goals and benefits of the relationship so both are engaged to the fullest extent. Fees seems to get in the way all too often," said Terry Nemec of Sioux Falls, S.D. "This can be dealt with if both parties strive to make the relationship a win-win."
SOUND OFF: What's the biggest problem with small business and what should CPAs be doing about it? Take the poll. See the answers.
COMMENTS: Rants, raves, idle thoughts or questions? Contact Rick Telberg.
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