Do You Have a Business Succession Plan?

Dear Valued Clients and Friends,

In this issue of The Financierge, we focus on business succession planning that helps business owners determine their goals, enhance business value, evaluate exit alternatives, develop written succession plans, and ensure business continuity.   In our podcast/vidcast, we speak with Greg Ring and discuss how business succession planning can be enhanced by philanthropy. Greg Ring is the Co-Founder of Giving Crowd and a recognized thought leader in planned-giving.


The Financierge AUDIO Podcast
with Greg Ring, Co-Founder of The Giving Crowd


“One of the things we often miss in succession planning is that it should be gradual and thoughtful, with lots of sharing of information and knowledge and perspective, so that it’s almost a non-event when it happens”
– Anne M. Mulcahy, former Chairman and CEO of Xerox Corporation. 


Seven Steps to Consider in Business Succession Planning

There are over 2.5 million small businesses in the U.S. owned by people ages 55-75. The sale of these businesses typically represents a major source of their retirement income. Of those business owners, most want to exit their business within ten years. Unfortunately, most business owners do not have a specific written business succession plan or a retirement plan. The following is a summary of the seven steps we use to help you as a business owner prepare for business succession and retirement planning.

1. Establish Your Team and Process – The first step is to surround yourself with wise counsel – a wealth advisor, investment banker, CPA, appraiser, attorney. We help coordinate your team to advise on a multitude of areas such as tax, wealth, business valuation, family, and legal. We will also establish a planning process and key measures to track your progress.

2. Determine Your Goals – Once you have assembled a team, we help you identify your goals, timeframes, and evaluate alternatives across key areas such as family legacy, retirement, tax, estate planning, business, and philanthropic goals. In deciding when to sell your business, there are several business and market conditions that will help you determine the right timing. These conditions include historically high valuations and tailwinds; your business has experienced multi-year growth in revenue and profits, the value of the company exceeds your retirement needs, and or competitors are selling. Or it just might be for personal reasons like insufficient working capital, divorce, partnership dissolution, or it’s just time to retire.

3. Identify Business and Personal Financial Resources – In this step, we help you quantify business and personal financial resources. We also help you identify the role of business value and business cash flow in the exit planning process. As part of this we also help isolate the critical factors or information necessary to determine business value such as the projected future cash flow of the business.

4. Maximize and Protect Business Value – It is important to look at the drivers of business valuation along with competitive benchmarks. The objective is to look at areas to grow business value such as products and services, key business functions, people, earnings, balance sheet, processes and practices, people, governance, customer base, tax minimization strategies, and key employee incentive plans.

5. Ownership Transfer – Whether you transfer to a third-party or insider, we help you identify and understand the various alternatives that may be encountered in selling a business. While most sales are to third-parties, transfers to the next generation or management/employee(s) buyouts are also popular. The following are eight major transfer strategies, along with some pros and cons:

a. Transfer of company to a family member(s). The pros are that you take care of the family member’s family; you know the family member; you still may have company influence; and the company’s vision, mission, and values continue. The cons are that you may not have liquidity for retirement; you may have to remain involved in the business; children may be unable or unwilling to assume ownership role, and there may be complications in treating all children fairly and equally.

b. Sell the business to one or more key employees. The pros are that you know the family member and still may have company influence; the company’s vision, mission, and values continue; and you have a chance of having a liquidity event sooner for financial security and retirement. The cons are that you may not have liquidity; you may have to remain involved in the business, and employees may be unable or unwilling to assume ownership role.

c. Sell to employees using an employee stock ownership plan (ESOP). The pros are that you may be able to defer or avoid taxes on the sale of stock to an ESOP, the company can pay for the stock with pre-tax dollar dollars, you may be able to have liquidity sooner, and performance of the company may improve since employees have ownership. The cons are the cost and complexity of setting up and maintaining an ESOP; you may receive more cash than other key-employee transfers but less than if you sold to a third-party, and your assets in the company may be tied to the ESOP loan as collateral.

d. Sell to one or more co-owners. The pros are that you know the buyers have the talent to run the business; you might be able to be involved in the company, and an installment sales could lead to the potential upside. The cons are you are generally not cashed out at closing; you experience ongoing financial risk; your involvement may need to continue post-closing, and you may receive less than full fair market value.

e. Sell to an outside third party. The pros are that you may get the highest purchase price and cash at closing; you control your date of departure, and there is no future investment risk. The cons are loss of owner identity and corporate vision and values; liquidity is contingent on future company performance, and it may not be favorable to employees.

f. Engage in an initial public offering (IPO). The pros are a potential high valuation of your ownership interest; cash infusion for the business; you maintain control, and company mission and values are preserved. The cons are lack of liquidity and additional reporting and fiduciary requirements.

g. Liquidate. The pros are you can leave the company immediately, and it might be the quickest process to get to cash. The cons are that liquidation yields the least cash; you often pay more taxes, and it may have a negative effect on employees and customers.

6. Business Continuity – Unless you liquidate, business continuity is critical to business value. In this step, we help to understand and identify solutions that support the continuity of leadership, ownership, and business operations. We also help evaluate if a buy-sell agreement (where the business or partners buyout partners using life insurance or debt) is a good option for your business.

7. Wealth Management and Estate Planning – An important part of your business succession plan is to identify, evaluate and implement strategies across your multi-generational family, tax, estate, investment, retirement, and philanthropic goals. We look at all of these areas holistically and comprehensive.


Bottom Line

At The Bahnsen Group, our objective is to help you grow, protect, and steward your wealth toward a multigenerational legacy of success and significance. If you own a business, succession planning is a critical consideration. Without proper planning, you may not get the highest value for your business and not be able to reach your personal and financial goals. In particular, if you have philanthropic goals, there are strategies and actions that you need to do before you sell your business. Please reach out to us to help you assemble the right team, develop a plan and process, and determine the optimal exit strategy for you and your family.

Warm and best regards,

Don B. Saulic, CFP® CPA

Partner, Private Wealth Management | Family Office Services

The Financierge Library (by Publish Date)

Business Planning
Business Entity Structures and New Tax Law Considerations (Aug 20, 2018)
Five Charitable Planning Perspectives to Know Before You Sell Your Business (Aug 20, 2018)
Two Estate Planning Tips for Your Businesses (Aug 20, 2018)
Four Strategies to Preserve Your Business’ Future (Aug 20, 2018)
Do You Have a Business Succession Plan? 
(Aug 15, 2019)

College Planning
Five Ideas About 529 College Savings Plans (Nov 2, 2017)

Charitable Planning
Twelve Charitable Planning Ideas to Reduce Income Taxes in 2018 (Feb 14, 2018)
Five Charitable Planning Ideas (Nov 20, 2018)

Estate Planning
Five Annual Estate Planning Tasks (Nov 2, 2017)
Four Components of a Wealth Legacy Plan (Nov 20, 2018)
Live and Leave a Strategy (Feb 4, 2019)

Investment Planning
Dividend Stock Investing (Feb 14, 2018)

Lifestyle Planning
Six Items to Keep in Your Vault (Nov 16, 2017)
Twelve Proactive Tips to Fight Identity Theft (Nov 16, 2017)
Twelve Ideas to Guard Your Family in a Digital World (Nov 16, 2017)
Is Your Lifestyle Balanced and in SHAPE? (Nov 20, 2018)
amily Governance – The Key to Multigenerational Wealth Transfer (Jun 19, 2019) 

Real Estate Planning
Four Points to Ponder Before Buying or Leasing a Home (Jun 22, 2018)
Six Considerations About Mortgages, Refinancing, and Taxes (Jun 22, 2018)
Five Elements of Reverse Mortgages (Jun 22, 2018)
Four Perspectives to Consider in Deciding to Move to a State with Lower Taxes (Jun 22, 2018)

Risk Management and Insurance Planning
Starting Social Security Benefits – Ready, Set, Hold!? (Nov 2, 2017)
Nine Considerations to Maximize Social Security Benefits (Nov 2, 2017)
Lifestyles of the Affluent and Exposed (Nov 16, 2017)
Eight Benefits of Health Savings Accounts (Mar 16, 2018)
Seven Ideas for Life Insurance (Mar 16, 2018)
Six Considerations About Long-Term Care Insurance (Mar 16, 2018)
Who’s Your Wingman or Wingwoman
 (Apr 3, 2019)

Retirement Planning
Starting Social Security Benefits – Ready, Set, Hold!? (Nov 2, 2017)
Ten Things to Know About IRAs and Saving for Retirement (Feb 14, 2018)
heers to Your Health, Wealth, and Wisdom (Jan 15, 2019).

Tax Planning
Twenty New Tax Reform Bill Changes (Feb 14, 2018)
2018 Year-end Tax Planning Strategies (Dec 17, 2018)
2019 Tax Planning Strategies (Feb 24, 2019)

The Bahnsen Group is registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and HighTower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

Third-party links and references are provided solely to share social, cultural and educational information. Any reference in this post to any person, or organization, or activities, products, or services related to such person or organization, or any linkages from this post to the web site of another party, do not constitute or imply the endorsement, recommendation, or favoring of The Bahnsen Group or Hightower Advisors, LLC, or any of its affiliates, employees or contractors acting on their behalf. Hightower Advisors, LLC, do not guarantee the accuracy or safety of any linked site.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of HighTower Advisors, LLC, or any of its affiliates.

About the Author

Don B. Saulic

Managing Director, Partner

Don is a Partner in the team’s Private Wealth Management practice specializing in helping affluent families develop comprehensive strategies for all phases of wealth accumulation, preservation, and transfer.

He also leads our Financial Concierge Services platform of professional alliances and serves as the editor of The Financierge.

Play Video
Play Video
Play Video
Play Video
Play Video
Play Video
Play Video
Play Video