Business brokers and CPA’s

This week on “Professionals of the Inland Empire,” host John Tulac is joined by two experienced business professionals; Michael Kay and Rich Schummel.

Michael Kay serves as the Managing Partner at RPB and B CPAs, a full-service CPA firm. He specializes in corporate and individual tax, mergers and acquisitions (M&A), and Employee Stock Ownership Plans (ESOPs). His primary clientele consists of middle-market business owners who are looking to exit their successful companies through various strategic options, including ESOPs.

Rich Schummel is a professional business broker who assists owners in the process of selling their companies. His functions include performing business valuations and qualitative analyses, as well as providing specialized consulting services aimed at enhancing the overall sellability and value of a business.

Mergers and Acquisitions, commonly referred to as M&A, involve the consolidation of companies or assets through a variety of financial transactions. These transactions can include mergers, acquisitions, consolidations, and other similar arrangements designed to combine business entities.

An ESOP is a retirement plan that provides employees with an ownership interest in the company. Structurally, it is a trust set up to benefit employees by holding company stock for them. This mechanism allows business owners to sell their company to the trust, which ultimately benefits the employees economically. Companies can be fully or partially owned by employees through ESOPs, which is typically a viable option for businesses with a substantial employee count, generally numbering 25 or more. Ownership ranges often fall between 30% and 100%, particularly in small to medium-sized enterprises that possess sufficient infrastructure. Revenue sizes for businesses utilizing ESOPs may range from $5 million to over $1 billion.

Succession planning is a critical hurdle, as owners must focus on cultivating management teams capable of operating the company independently post-sale. This transition requires a dedicated focus on management development, necessitating proper training and the empowerment of current staff members to step into leadership roles as the owner prepares to step down.

Many business owners face common issues when they decide to sell, often lacking a comprehensive structure for the transition. This frequently leads to premature or reactive decisions made during stressful periods. Preparing for a sale is of utmost importance and should ideally occur long before the intention to sell is announced. Key steps in this preparation include clarifying the management structure, improving financial records, and reducing the company’s dependency on specific key clients.

Schummel evaluates companies to enhance their marketability through qualitative analysis and consulting. He observes that many owners approach the sale process far too late or without adequate preparation. Finding a strategic buyer, such as a competitor, is crucial for success. Because most companies lack a strong internal process for identifying buyers, brokers play a vital role in market placement to ensure a successful transaction.

Owners should consider financial and structural improvements several years before they plan to sell. This often involves coordinating with accountants to ensure transparency and high-quality financial reporting. The specific entity structure, whether it be a C Corp, S Corp, or LLC, can significantly impact the tax implications of a sale, requiring substantial forethought regarding future exit strategies.

Accountants and business brokers perform complementary functions during a sale. Accountants manage financial reporting and compliance, while brokers focus on market valuation and finding the right buyer match. During the due diligence phase, brokers rely heavily on accountants to provide accurate financial statements that prove the company’s viability to potential buyers, which is especially critical when dealing with complex buyers.

The PIE podcast aims to showcase Inland Empire professional talent, foster local economic development, and highlight the Provisors networking community. Catch the full show on YouTube @ProfessionalsofInlandEmpire.