2 Succession Planning CPE classes

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#1
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CPAAcademy.org is offering 2 CPE classes, one hour each with a focus on succession planning.
This is an area that interests me so I figured I would share.
They are free, so you get what you pay for.

July 8th 2021 1pm EDT
Succession Planning: Keys to Selling Your Practice
https://www.cpaacademy.org/webinars/a0D2S00000pOKgVUAW

August 11, 2021 11am EDT
Succession Planning and Alternative Deal Structures
by Joel Sinkin
https://www.cpaacademy.org/webinars/a0D2S00000oPT2iUAG
I try to catch a seminar every year by Joel, because he usually provides some details on the current pulse of deals, yearly updates type of thing.

Always curious to see how the buy/sell factor is impacted as the older folks (boomers) are aging out and looking for exit strategies.
 

#2
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For what it's worth, I am a big believer in leveraged buy-outs via controlled unrelated buyers. There is a conversion of ordinary income to LTCG without losing control, thus allowing the transition to begin early. The technique also works well in other fact patterns.
Steve
 

#3
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gatortaxguy wrote:For what it's worth, I am a big believer in leveraged buy-outs via controlled unrelated buyers. There is a conversion of ordinary income to LTCG without losing control, thus allowing the transition to begin early. The technique also works well in other fact patterns.


Could you expand on this?
 

#4
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My recap on the above 2 courses.
They did not go over multiples for internal vs external, but 1.0x gross revenue still seems to be the prime target area.
Organic growth went somewhat stagnant during the pandemic, and most M&A deals also stalled during the pandemic.
They are foreseeing M&A to be a prime growth opportunity for most firms who want to expand, with the stagnant organic growth.
Certain areas might be able to get over 1.0x multiple, depending on firm size, niche market, supply and demand, and of course location.
If you want to be out in 3-5 years, you need to start working on your exit strategy now.
Most accounting firms in the US are small, with no succession strategy in place.
Baby boomers are still getting to that phase out stage, and lots are holding on due to the pandemic economic uncertainty.
Leases can cripple a deal, especially in the new remote work environment.
Don't mention the word "retire" to older people, because retire = death, instead ask when they are thinking about "slowing down".

Those were all the main points I picked up.
I know in my local area it takes about 3 years for a seller to find a buyer to take over (at least based on the deals I have seen come together.)
 

#5
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Hi, ManVsTax,
Goodwill is a capital asset which can generate LTCG on sale. The first step is to establish a controlled unrelated buyer (CUB). I've used taxpayer-declared taxable trusts fbo an unrelated person as the CUB, usually with an S corp and a 338(h)(10) election, but there are other ways to do it. To make the numbers hum, I use a rule of thumb that says the price trade-off between cash and an installment note is 2:1. (So if one can justify a 5 times earnings cash price, I use 10 times earnings where the consideration is a long-term, low interest installment note.) Because the only IRS weapons are what are essentially judicial doctrines, my experience is the down-side on appeal is a mere reversal, rather than penalties. That is, it's heads I win, tails we break even. The lawyering comes in when analyzing the situation to come up with a story to justify the transaction.
Steve
 

#6
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The basic transaction works with just about any small business not in a C corporation. It's a way to convert a substantial portion of future OI to LTCG without losing control. The question is how to structure it so that the downside, everything considered, is less than the tax savings. And that depends on the story.
Steve
 


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