For more than 40 of O’Donnell, Ficenec, Wills and Ferdig’s almost 70 years of operations, Gregory A. Harr has partnered with clients to determine the true value of their businesses, a “must” to facilitate successful transitions to the next generation of leadership, and successful transactions that reflect the real worth of one’s blood, sweat and tears – his or her business.
“I like the variety, and I like helping people,” said Harr, who is “triple-certified,” as a CPA, Certified Exit Planning Advisor and Accredited Business Valuator. “Basically, accounting is called the ‘doctor of business’; they help people with their taxes, with the consulting, with their business in general.”
A former intern with OFWF who made partner in 1983, Harr underscored the consulting side of his work.
“You know how businesses operate, you know the numbers, you know how to analyze them and what they should be doing compared to their peers,” he said. “Also, on the tax side, you’re trying to save them money, but still be in compliance.”
His guidance, in turn, should “pay for itself” in terms of savings.
“Recently, as far as in regard to what you’ve heard with the [Paycheck Protection Program] loans, basically we’re getting the information out to our clients, to make them aware of it and to pique their interest,” he said. “So, they think about applying for the loan.”
At the time of this writing, OFWF was also awaiting clarity on the “next steps” for loan recipients (related to the loan forgiveness process). Harr also referenced exploring how Tax Cuts and Jobs Act (TCJA) reforms effective January 1, 2018 might be applied to help clients save money.
Business Valuation: More Than Meets the Eye
“The value of any business is principally based upon its cash flow,” he said. “There are lots of ‘mom and pop’ companies … and you have to be able to go through and analyze the business, to determine what is personal in nature and needs to be added back to their cash flow. The tax returns and financial statements don’t always give you a true picture.”
Leveraging the experience that provides a basic framework for each project, Harr said the process of determining the value of a business takes at least a month.
“You usually get five years’-worth of tax returns, of financial statements, and then you compare them to their peers based on the information that can be obtained from various sources,” he said. “You go back, sit down with the client, and then go over the variances and ‘quiz’ as to what he does, what is unique about his operations. You delve into the equipment and what their specialty is to learn more about it, in addition to what the analytical work has shown.”
Harr continued: “There is nothing really standard. It’s a lot of fun to get to know how businesses operate. You can’t take the numbers and start generating the value. You get to know what the entity is all about and get into the ‘meat.’”
Exit Planning: Let Time Be on Your Side
A few years back, Harr recalled a client who thought that the “exit” from his business could be completed in about two months.
“It doesn’t work that way,” Harr said. “If you’re going to do it right, it generally takes about five to seven years. And not everybody is aware of that. As far as what happens with succession planning, there is a life event that takes place and they need to sell. Most business owners are so entrenched in their business, that they have a hard time separating themselves from it.”
For 15 years, Harr had tried to get a restaurant owner in town to move into the “next generation.” Before the owner finally entertained the idea, he had a stroke. Harr indicated this situation is more the “norm” than the “exception.”
“You can say that with a lot of families, that’s usually what happens,” he said. “You can talk about any industry and any family-owned operation; the vast majority of business owners don’t plan … bigger operations do plan.”
The difference between those owners that plan versus those that don’t is striking.
“I was working with a manufacturing concern [entity] about three years ago, and it took about five years to get everything to go to the next generation,” Harr recalled. “But it was successful and they’re doing quite well just because of planning.”
And the businesses that don’t plan? It can be a matter of completely shuttering or “not getting their true value out of what the business is worth,” Harr said.
Planning in the Time of COVID-19
“Because of COVID, everybody is pretty much hunkering down … there are too many unknowns,” he said. “And I suggest that people don’t make major decisions or make big commitments, either.”
A nod to this approach, one of Harr’s clients was six months into a project to move their operations to a different building – either an existing space or one built anew – and then the pandemic hit.
“They are going to stay where they’re at,” he said. “Going forward, [COVID-19] is going to change the size of offices, the size of manufacturing concerns, the layouts are going to be totally different than what they were in the past. Until they have a good idea of what’s going on economy-wise, they’re not going to make any kind of major decisions.”
As organizations pivot, Harr emphasized the importance of surrounding oneself with a good team of advisors. He, for one, partners with a variety of experts on client projects – bankers, attorneys, financial advisors, even family psychologists (should family dynamics come into play with succession planning).
“In order to take care of a client, communication is very key,” Harr said. “It’s about making sure that everybody on the team is communicating, and that everybody knows what is going on. So, you can help the client. It takes more than just the accountant on the job.”
Born in McCook, Nebraska, Harr graduated from McCook Junior College and Creighton University before joining O’Donnell, Ficenec, Wills & Ferdig. His areas of expertise include income tax planning, tax preparation, litigation support and, of course, business valuation and succession planning.
Ideas garnered from our conversation (as additional ones come to mind, I’ll tack them on/send your way):
I thought the “family dynamic” consideration was most interesting. It might be worth connecting with the family psychologist contact, and developing story/ies to address this often-awkward topic that no one really wants to discuss until their hand may be forced by life events …
A discussion or overview of the TCJA in the era of COVID, as it relates to minimizing liability and tax implications, could be particularly meaningful in this environment.
Of course, hopefully, there will be more clarity as it relates to PPP. Now that loans have been obtained, what’s next? Greg referred to question marks over the documentation that is needed related to the tax forgiveness process.
In the COVID-19 economy, Greg and a number of my other sources have brought up that costly asset of buildings, and how offices might look in the future. Could be interesting to either revisit with Greg about what that could mean for planning down the line, or possibly a contact in the real estate/architecture/design realms …
I specifically asked Greg if he’d be willing to connect me with: a.) clients who might be able to share their experiences with these (valuation, succession, etc) processes and b.) partners (technical experts in other fields). He said he could, it just depends on what we’d like to focus on next.