I've been running my manufacturing business for 22 years and I'm finally thinking about an exit in the next 3-5 years. I know I need a tax professional involved early, but I don't know what kind of tax pro to look for or how to vet them. My current CPA does my annual returns but has never mentioned exit planning. Any suggestions on where to start?
Exit Planning
Working with tax pros to plan your exit
Your current CPA might be perfectly capable but just hasn't brought it up because that's not how they work. The first question I'd ask is whether they have experience with business sales, not just compliance. Ask them directly if they've worked on sell-side transactions in your industry.
I went through this two years ago. We ended up hiring a separate tax advisor who specialized in exits. Cost more upfzront but saved us a lot on the back end. Worth every penny.
What structure is your business? That matters a lot. S-corp vs C-corp vs LLC changes the whole conversation.
It's an S-corp. Been that way for about 15 years.
S-corp makes it more straightforward than C-corp, but you still need someone who understands the nuances of asset vs stock sale and how that affects your basis. Don't assume your annual CPA knows this just because they handle your 1120S.
i'd start by asking your CPA if they have a network of advisors they refer to for exits. If they don't, that's a red flag about their depth in this area. Also check if they're part of any exit planning groups or hold relevant designations like CEPA or similar.
One thing I wish I'd done differently: I brought in the tax advisor after I had a letter of intent signed. Should have been earlier. The structure of the deal was already mostly set by then and we had less room to adjust.
Timing is everything. We started talking to a tax advisor three years before we sold. That gave us time to do some restructuring and take advantage of some things we couldn't have done last minute.
How do you even know if a tax pro is good at exit planning versus just saying they are? Every advisor I've talked to claims they do this work.
Ask for references from clients who have actually sold. Not just clients they've done annual returns for. And ask how many exits they've worked on in the last 12 months. If they cant give you a number, that tells you something.
Also, a good tax pro will ask about your personal goals and timeline before they ever talk about structures. If they jump straight to tactics, they're probably selling you something.
I'd also look at whether they work with your other advisors—attorney, M&A advisor, wealth manager. A tax pro who's used to collaborating with with a deal team is going to be more useful than one who works in isolation.
This is helpful. So it sounds like I shouldn't just assume my current CPA is the right person for this, even if they're good at what they do.
Right. And it's not a knock on your CPA. Some are great at exits, some aren't. The problem is most won't tell you they aren't because they don't want to lose the relationship.