Business Innovators Radio - Interview with Rexford Cattanach, President of Keats Group Discussing Working with CPAs on Business Succession

Episode Date: September 13, 2024

Rexford is president of Keats Group LLC, a comprehensive financial advisory firm. He works with successful families and family businesses to implement effective income planning, tax planning, and asset protection solutions that are administratively practical. He manages our service relationships with specialists for complex tax and estate planning, business transitions, and company retirement benefit planning.He writes and speaks on various succession and compensation planning topics for professionals and business owners. He is the lead author of InBusiness™, which features topics of planning interest to Private Clients.Mr. Cattanach has served on community boards and other leadership roles in the Twin Cities, including the Board of Directors of Lakeview Health, a sole corporate member of HealthPartners health system, where he was chair of the physician and executive compensation committee, a member of the finance committee and the ad hoc committee overseeing the Lakeview Health integration with HealthPartners.Rexford is a fiduciary, independent financial advisor who has completed over one hundred business valuations and transitions. He has volunteered as an academic tutor and mentor to at-risk K-12 children at Good Neighbor Center in Saint Paul, Minnesota for 19 years. To recharge, he enjoys the quiet scenery of trail hiking, road biking, and Nordic skiing.Learn More: https://www.keatsgroup.com/Keats Group LLC is a comprehensive financial services company that provides investment, tax and estate planning, asset protection, and pre- and post-sale guidance to private clients and business families. Keats Group and its agents and employees do not provide legal or tax advice. Investment services are offered as a fiduciary Independent Advisor Representative of Advisor Share Wealth Management, a Registered Investment Advisor (RIA), upon completing a signed Service Agreement.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-rexford-cattanach-president-of-keats-group-discussing-working-with-cpas-on-business-succession

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with us, Rexford Katna, who's the president of Kich Group, and we'll be talking about his work with CPAs on business secession. Rexford, welcome back to the program.

Thank you, Mike. It's always enjoyable to be on. Yes, thank you. And, you know, I know that working with businesses about planning their exit is important. But now we want to talk about how you serve CPAs with how they serve their business owner clients. So how did you get started focusing with CPAs? And number two, you described how important that it is with working with advisors. and I know you've got CPAs on your team.

Talk a little bit about your work with CPAs to help them succeed with their business owner clients. Well, our CPA relationships are usually CPAs of our clients. They are joint advisors. And so we have CPAs involved in our business succession planning projects in all cases at some level. Sometimes the CPA is very involved. Sometimes the CPA is involved just,

for text projections on a specific question or a specialty they happen to have experience with. Good advisors in any profession, whether it's CPA or financial advisor or authority positioning advisor as you are, generate many or most of their growth through referrals. And CPAs are good centers of influence for us. But in practice, it's a challenge to form CPA. relationships at first. And I learned this back when I started early in my career at Deloitte. We were in the same firm. I was in the consulting practice. And our auditors and tax advisors, the CPA branch of the firm, were in a different practice. And we had to tread carefully,

you know, to introduce consultants to their clients. They were protective of them. They have close relationships. In financial services, I think the fault for this is ours. Looking from their point of view, financial advisors look a lot alike. There are many of us. We have good investment strategies, perhaps. We put clients first. We say we care for our clients.

But that doesn't help the CPA professional at all. nor does a pitch deck. They don't know if we're different until we show them how we're different. And for us, for our firm, Investments is the last topic we would choose in the least controllable area for us to add value as a wealth advisor. It just, we can't control the investment markets. Now, in my defense, you know, I routinely. refer clients to CPAs. I refer clients, even more clients, to attorneys to property, casualty insurance professionals. And my clients have been well served by me doing that because

the professionals in my network are talented, horrific professionals. But the variable that's missing is the CPA. They're experts with numbers, but they prepare the client's tax return and know their business, but they are not equipped to evaluate one investment or another. They generally don't try unless they're a large, sophisticated firm. They don't try to evaluate the estate plan or development of a trust. Hey, we're human. And it's okay for these people to know what's important for them and how we add value to them and their business.

Yeah, that's huge. is adding value. So what are, what are some of the ways that you help CPAs maybe recognize as well as monetize opportunities that they can take advantage of? Yeah. Well, we help them become more valuable to their clients. For example, we, we prepare an annual tax report every year for our clients. We do that using, you know, tax planning software. It's different than tax reporting. software that they use. We use, you know, horrific tax planning software that draws from the form 1040. And that tax report identifies not only text planning opportunities, but produces an annual text letter. And that letter summarizes some of the observations and opportunities that we find.

and we provide that report and letter to the client, and with their approval, we provide that report to the CPA. And so we've now engaged or brought the CPA into the tax planning discussion, and we've saved them a lot of time and maybe even opened some doors to them participating in that process. And, you know, that helps them not only retain clients, but generate business outside of their busy season. Yeah. That provides value by helping them provide value to the business,

but also could provide actual value to the CPA. So that's pretty huge. You know, you've mentioned that a lot of times companies don't have a good business valuation, and that's kind of like running rampant these days in a, you know, kind of like an epidemic, unless they're like right in the middle of a sales cycle. But, you know, that really becomes something that that should be planned ahead of time. Should businesses prioritize having an annual business valuation? Well, we think they should, yes, definitely.

I mean, because I think that a lot of times people think, you know, oh, our annual review or a budget review or annual taxes, but an annual business valuation, I don't think has crossed the mind of business owners before. I don't either in most cases. I think it is very valuable. I think the effort involved in updating evaluation annually is rather modest. Yeah.

And it brings to the surface disagreements of value or conversations about value with the CPA. CPA knows a lot about their client business. And I can't hardly track the number of times when there's been conversational differences between the valuation that we, valuation number that we attach to a business, the valuation number that the CPA attaches to the business. And the reasoning for that usually is, is not the determination, or excuse me, the math behind valuation number. I think, you know, we understand those multiples and discounted cash flow pretty well, both of our parties. But it really has to do with what discounts take place in the sale of a small privately held business in the real world of selling

them, which we have experienced in the CPA. Some CPAs are active selling businesses, but most are not. And, you know, we play in that database world that determines different, that has different comparable ranges of value for small businesses that are served by the business broker market or owner-operated businesses, different databases that are used by the middle market, which is probably $10 to $20 million and up, or publicly traded companies, which CPAs are going to be more familiar with than we are typically. Yeah, once you have that baseline, then it's easy just to kind of pull it

up and annually just tweak the numbers in every category. So having that in place, I think would be really powerful. So talk a little bit more, maybe elaborate on that, having that current valuation. How does that impact the value of the business and maybe even the selling of a business? In other words, how does this report translate to more money for the owner? You know, because I think that that's something that a lot of people, if they're looking to sell the business, that's what it's all about. What's that for sale sign going to be? Well, in our private planning process, which I've described or discussed with you in a previous show, we're looking at goals for growth of an asset, income produced from the assets, the family or individual owns, the risks,

to the asset and the transfer or estate planning aspects of it. And the business valuation is it contains a number of assumptions. And those assumptions can each be attached to one of those boxes. They're goals and subgoals. if we have an asset like a business that is not going to provide an adequate guaranteed income for a retirement, what are our options? Well, we can increase the value of the business. We can work longer in the business.

We can sell partial ownership. We can address the weaknesses that are depressing the value. there's going to be dozens of responses to what we would do in that situation. And those discussions and plans start from a point of determining a value and an income that's generated from when that asset is transferred from, you know, something we own and operate to something that produces income. 100%. And if you don't know where you're at, it's hard to put that price tag on it and hard to quite to question. quantify why you put that price tag on it. Yeah. And the other issue and argument for annual business valuation is an issue of timing and situational environment. If two-part business partners, this is where we had many experiences because we had developed really a specialty of

partner separations and partner buyouts. If two partners worked together for 10 years, and they are engaged in a business valuation task or project or purposes of a buy-sell agreement. There's harmony. They're going through a process. They're working on the same side of that business valuation. Once a trigger event arrives or a decision where one of those two partners is going to leave, they're no longer in a harmonious 10-year working relationship. They are at that point in time, buyer and seller.

And there really are no realistic situations where they're going to agree on price and terms. And so when you've done business valuation at a point in time where the collaboration and relationship is strong, you're going to have a better answer and a more defensible answer for when the trigger event arrives. Further complicating this is family, and specifically spouses. We have had more than our share of deals, of sale or transfers of business, where a spouse who really was not involved in the business at all suddenly becomes the valuation.

expert and their house is selling. And, you know, leaving under the terms of a buy-sell agreement, they're, suddenly they're, they're the negotiating arm of that selling partner. So valuation is just like budgeting and performance review for employees. It ought to be a recurring business planning activity. That's a great, great point. I think that's, uh, something that a lot of times, I like that example about, you know, the, the spouse that

wasn't visible any other time, but now when we're talking money, they're the expert, but they really are not. So, you know, I think that every year there's deadlines. And when you're, you're work with CPAs, they've got, you know, the April 15 type bit deadline for individual taxes, but the October 15 deadline with, with businesses and things like that. There's always those deadlines where they are going to be talking with. their clients, their business owner clients, their high net worth clients. What advice would you share with the CPA to bring up a meaningful conversation with their client about exit planning

or succession planning so that the CPA can add value to the client? Well, we'd suggest that they go through some form of assessment to identify the clients that would really benefit. And they might have that process organized internally. They might have another tax advisor of their own for their firm that can support that. We have a checklist, a CPA-specific checklist that we make available without charge to them to identify questions that they can think through or have their a conversation or ask their client to complete that might identify tax opportunity. And that's valuable any time of the year. It's especially valuable, you know, with enough of a runway to be able to make some decisions

or take some actions before year end in some situations. We're involving moving money. But in other cases, just has to do with some of the, basic things that are, they do not have time or focus on, which are the registration of accounts, the joint titling of accounts. Real estate holdings or owned real estate in two or more states where that couple or family is going to encounter, you know, ancillary probate or probate in more than one state because they have a family cabin in Wisconsin. Yeah.

There are things like that. There are questions in that in our checklist that deal with, you know, unrealized tax appreciation that's coming out of their mutual funds and other things where we simply ask them a general question that the client would know the answer to and the CPA is not paying attention to them. Really can't in most instances. You know, it makes me think, too, that this, when a CPA can follow those kind of guidelines and provide that kind of thought process to their client during

those meetings and those times. It provides added value to the business owner client or the client, but also it provides out of value to the CPA because it elevates their perception in the mind of their client. So you're really doing a service on two fronts, right? We are. And I think it, not to be black and white about it, but it makes. them look good because they have moved from, you know, historical tax reporting, which rooms them for many months of the year into proactive tax planning. And they are, in fact, you know, piggybacking on a process that we've spent a lot of years, you know, helping.

And they're more valuable to their clients. I think that makes perfect sense. And so I think that as a CPA hears that, they can have that little tool tucked away and put in their portfolio and folder for their client interactions. It's a quick questionnaire checklist. It just kind of gives them something to think about to really sink their teeth into in that meeting. So I think that is spectacular.

Well, Rexra, I think this is so powerful to be able to provide this added value to CPAs on business accession for their clients. So I think that is just a really powerful service that you provide. if any CPA is interested in learning more about this and reaching out connecting with you, what's the best way that they can do that? Well, I'll leave my email address. They can connect or schedule a meeting or call us, and we can see where we might be able to help them. We can, without obligation, provide our checklist and perhaps briefly how we,

use it. My email address is first initial, so it's R-C-A-T-A-N-A-C-H at T-E-A-T-S-G-R-E-A-T-S-Grupe.com or our general office number 651-7-7-3-8-400. And I'd be happy to schedule an introductory time to speak. Excellent. Well, Rexford, thank you so much for coming back on. It's been a real pleasure talking with you again. Thanks, Mike. Good to be back. Bye-bye. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www. www.influentialentrepreneursradio.com.