The Conversation You Are Not Having Before the Sale

Some years ago I took a call about a physician who was selling a building.

The buyer was another doctor in the same building, so the transaction should have been simple. It was not moving. It had been sitting for weeks, and the seller could not explain why he kept stalling.

His CPA had projected federal and state tax in the low six figures on a gain of a few hundred thousand dollars. The number was correct. The CPA had done nothing wrong. He had computed the tax on the transaction in front of him, accurately, which is what a preparer is engaged to do.

I asked the doctor one question that nobody in the transaction had asked him.

Did he own any other property?

He did. He had bought a second building three years earlier and had put substantial capital improvements into it. It was not part of the sale, it was not part of the discussion, and it had never come up because nobody had thought to widen the frame beyond the asset being sold.

Once we looked at both properties together, the picture changed entirely. I was able to tell him something I do not often get to say.

"Doctor, you don't have a tax problem."

The transaction closed.

Why I tell this story to advisors

Not to make a point about any particular provision. The specifics of what we found are less interesting than how we found it, and the how is available to any advisor reading this.

The insight came from a question about assets outside the transaction. That is all. Nobody had asked it because everybody in the room was looking at the building on the contract, which is the natural thing to look at. The broker was looking at it. The CPA was looking at it. The buyer's side was looking at it. The one asset that mattered was in a different file.

Your clients have files like that. You know their full balance sheet better than any transaction participant does. You are, in many cases, the only person in the client's life who sees the whole of it.

What the conversation actually sounds like

It is shorter than advisors expect and it does not require you to know any tax law.

You need three things.

• What is being sold. Business, building, portfolio, partnership interest, or an unusually large income year with no sale at all.
• Roughly how large. A range is fine. You are establishing whether the exposure is material enough to justify the work.
• Where it sits right now. Under discussion, listed, under letter of intent, in escrow, or closed.

That is the entire conversation. Under two minutes. You are not diagnosing anything and you are not proposing anything. You are finding out whether there is a question worth asking.

The reason advisors skip it

I have asked a good many of them and the answers are consistent.

They do not want to raise a topic they cannot finish. If the client asks a follow-up question and the advisor has no answer, the advisor feels exposed in front of his own client. That is a rational fear and I take it seriously.

But consider the alternative sequence, which I watch play out several times a year.

The client sells. The tax lands in April. The client asks his advisor why nobody mentioned this. And at that moment the advisor has the same lack of an answer he was avoiding, except now it arrives attached to a number the client will remember for the rest of his life.

The uncomfortable conversation happens either way. You get to choose whether it happens in March, when something can be done, or in April, when the subject is a completed fact.

What comes after the question

If the three answers suggest exposure, you bring in someone who does this work full time. The client's CPA stays where he is. The client's attorney stays where he is. You stay where you are, which is at the center of the relationship, because you are the one who saw it coming.

I have never taken a client from an advisor and I have never wanted to. The analysis is the work. The relationship is not on the table.

The one thing to do this week

Look at your book and identify every client with a transaction likely in the next twelve to twenty-four months. For most advisors that is a short list, five names or fewer.

Then ask each of them the three questions.

You will get five answers. Four of them will be nothing, and you will have spent ten minutes. The fifth is the one you would have heard about in April.

This information is general and is not tax, legal, or investment advice. Client details have been altered and figures generalized to protect confidentiality. Every situation is different.