Guiding an Exit and Supporting the Exit Are Not the Same Thing
Most entrepreneurs don't know what the transition looks like to go from TurboTax to CPA prep to CPA strategy. Let me start with a boundary that matters and that most entrepreneurs don't fully understand.
A CPA cannot tell you whether to invest in something. They can explain the tax treatment of an investment. They can tell you what category it falls into, how it would affect your liability, whether it creates passive losses or ordinary deductions. The moment they cross from tax treatment into recommending a specific investment, they've entered securities-regulated territory.
This matters because entrepreneurs sometimes expect their CPA to be their investment advisor. Others expect their CPA to be a private equity advisor with experience of growing and exiting a company, or for my real estate friends, scaling a portfolio.
A high functioning CPA acts as a controller with quarterly insights, not just in March. They review your P&L for tax reduction opportunities on the expense side as you grow. They're watching your entity structure against your revenue trajectory. They're not just closing the year but are shaping the next one.
The best ones function closer to a CFO. They're in the room when you're making significant financial decisions. They understand your business model well enough to flag when a decision that looks good operationally has a tax consequence you haven't priced in. They grow with you and they plan with you for the eventual sale or investment.
However, this can also be the double edged sword. If a CPA doesn’t have experience with an investment or working with clients 5x your income or net worth, can they really advise? A decision for you to make.
This issue will mainly focus on the company exit scenario although it can also operate on the investment side. Tax strategy is a nuanced thing. CPAs can say they are doing tax strategy but almost every single high-income earner I have talked to hasn’t heard or implemented even the simple strategies. Yes, this is a bold claim however, I hear it time and time again from friends or other high income earners. Whether it be strategies, investments, or exit planning, it is important to know their limitations or they will cost you millions.
Operating Mode vs. Exit Mode — Two Different Financial Languages
There's a tension inside every growing business that most entrepreneurs don't see until they're in a sale process and it's too late to resolve it cleanly. Planning an exit is at least an 18 month operation between preparing and entertaining interested buyers.
When you're operating, the goal is to minimize taxable income. This is done by running expenses through the business, maximizing deductions, using every tool available to keep the liability low.
When you're preparing to sell, a buyer is looking at your EBITDA aka earnings before interest, taxes, depreciation, and amortization. The buyer is (typically) paying a multiple of that number. Every dollar of expense you run through the business to reduce your tax bill is a dollar that suppresses that multiple. The same strategy that saved you taxes for a decade could be costing you three to five times that amount in enterprise value when you go to sell.
This isn't a reason to stop managing your taxes aggressively. It's a reason to be deliberate about the transition, to know when operating mode needs to start giving way to exit mode, and to have an advisor who has navigated that shift before and can tell you when the timing is right. The CPA who works with us in house for example has done over $2B worth of M&A transactions, for context. However, the goal isn't to find the most impressive CPA on paper. It's to find the one who's operating at the level you're building toward.
The entrepreneurs I've seen leave the most on the table in a sale aren't the ones who didn't grow a good business. They're the ones who had the wrong financial picture when the buyer arrived and took too much income out or reinvested poorly through tax strategy along the way. It definitely pays to know!
If you're planning to sell in the next three to five years and nobody on your advisory team has had that specific conversation with you, the gap will show up when you want to or worse, when you need to because of health or divorce.
WANT TO GO DEEPER?
Reply EXIT and let's look at whether your current advisory team is built for where you're going.
If a sale is on the horizon — even a distant one — the structure needs to start shifting now.
Evaluating Your CPA at Scale: 4 Direct Questions
These aren't hypothetical questions. They're the ones that reveal in about twenty minutes whether you have a compliance relationship or a strategic one. Reevaluate every one to two years. Ask them in your next meeting or send them in advance.
'Do we have quarterly meetings specifically about tax reduction and business profitability?' A CPA who isn't looking at your numbers proactively throughout the year cannot meaningfully reduce your liability for that year. They can only report what happened. *Additional details below
'What is your role in my business growth?' This question alone will tell you a great deal. Are they a bookkeeper, controller or CFO level advisor? Some CPAs will answer honestly and clearly. Others will describe a role that sounds strategic but doesn't survive follow-up questions. Push further: 'What specific decisions have you helped me shape this year, beyond compliance?' Listen for real examples. Often times you can be the one bringing the value and they are implementing it.
'Have you worked with clients through a business sale to structure and outline the structure?’ This is the architect vs. witness question framed directly. If they have, ask what they did in the operating years before the sale to prepare the business. If the answer centers on documentation and filings rather than structural decisions, entity cleanup, and EBITDA normalization, you have a witness. You may need an architect. Bonus points if it’s in your industry with a company of your size.
'What boundary do you observe around investment recommendations, and who should I be working with for that?' You want a CPA who knows exactly where this line is and can articulate it clearly. They advise on tax treatment. They don't recommend securities. If they can answer this crisply, you have someone who understands their role.
*The additional details - Some CPAs have worked referral agreements with syndications to get paid a percentage or a fee for the referral. They may not know about the investment or really the details behind the operations of the company.
* More additional details - some CPAs do offer tax strategy and can charge anywhere from $3000-$6000 a year for this type of service. However, what I found is this is a flat fee that is more educational than strategic.
The witness vs. architect distinction at a glance
The CPA role spectrum — where does yours sit?
COPY-PASTE: The CPA role spectrum — where does yours sit?
Hey [Name] before our next meeting, I want to come prepared with a few strategic questions. I'd love to talk through:
What's your read on my current entity structure given where my income is now and where I'm heading?
If I were planning to sell this business in three years, what would you change about how we're running the financials today?
Are we meeting often enough to actually reduce my liability in real time?
Who do you recommend who works with investments who has an understanding of each industry? Do they also understand the tax implications of the investments? How are they and you compensated?
How a CPA responds to these questions tells you more about the relationship than anything in your filing history.
Four Reference Points for Evaluating Your Advisory Team
Tool 1: The EBITDA Multiple Frame
Action: Research industry-average EBITDA multiples based on your specific revenue size.
Value: Calculate the enterprise value gain from a 1-point multiple improvement. This serves as the financial justification for restructuring expenses before an exit.
Tool 2: CPA Licensing Boundary
Action: Verify if your CPA holds a Series 65, 66, or 7 license before accepting investment advice.
Value: Ensures you are receiving regulated securities advice from a licensed professional (RIA or broker-dealer) rather than unlicensed recommendations.
Tool 3: Quarterly Business Review (QBR) Template
Action: Facilitate a quarterly meeting covering YTD effective tax rates, expense reduction, entity structure, and retirement trajectories.
Value: Provides a consistent structure for proactive financial management, even if you have to provide the agenda yourself.
Tool 4: Exit Readiness Checklist
Action: Ensure normalized owner compensation, clean expense separation, three years of consistent EBITDA, and a transferable entity structure.
Value: Establishes a "clean" financial history, which is the necessary first step with a CPA before engaging investment bankers.
QUESTION FOR YOU
If you told your CPA tomorrow that you're planning to sell your business in three years, would they know immediately what to change for the exit and your taxes?
The answer to that question defines the relationship more clearly than any return they've ever filed.
How Founders Accidentally Lose Millions During Due Diligence
In this episode, Paul Graham talks with Eric Nghiem, founder of The Cashflow Doctor, about how founders lose millions during due diligence and how smarter financial structures can save them big. From avoiding DIY bookkeeping mistakes to fixing entity setup and tax strategy, they break down real cases, including an $850K tax save on a $22M exit.
BEFORE YOU GO
For as much as I went into depth about how your CPA should show up for you, as you scale, you might want dedicated professional, such as a fractional, CFO or controller or tax strategist and not have all of these roles in one.
Scale from 6 to 7 figures this one person becomes several. As you go from 7 to 8 there’s several people are more fractional moving into more full-time.
All about taxes and preparation for the future. This is the month to understand, plan and avoid losing millions in wealth from taxes and from an exit.
Ping me with questions.
— Paul
P.S. — Tonight I’ll be fortunate to attend an NFL draft party in Pittsburgh, PA. Invest not only for wealth but also in relationships with people.