Exit and Succession Plan

An exit and succession plan is a critical element of a business owner’s exit planning strategy. A goal of many business owners is to someday transfer their business interest either to family members or to key employees.

What you really want

Succession planning can help businesses in the case of the owner’s death or disability. Through a holistic process we first find out “what you really want” and help you formalize your exit and succession plan and future goals, alongside your CPAs and attorneys for further assistance.

 

 “There is no greater honor than to live in the shadow of your son.” – Ross Perot

 

Privately owned businesses are the main generator of personal wealth and employment in the US.  The truth is that many small business owners have no exit strategy for their businesses in the event of their disability, retirement, or death. Many small business owners find themselves focusing their energies on business survival and future growth. However, a business exit strategy not only means having a plan for the unexpected – including financial hardship, injury, disability and even death – it also means having a plan for the succession or transfer of ownership of your business when it comes time retire.

More than 50 percent of all small-business owners are 50 or older, according to the U.S. Small Business Administration.

That means many of America’s 28 million small-business owners are coming to that point in their lives when they need to think about a transition for their businesses.

A recent survey by CNBC and the Financial Planning Association found that while 78 percent of small-business owners intend to sell their businesses to fund their retirements, fewer than 30 percent have a written succession plan.

A good plan covers both the human-resources aspects of a transition and the financial details, particularly if your succession plan is supposed to generate the money you will live on during retirement.

Key issues include:

  1. Generational transition. Only a third of all family businesses successfully make the transition to the second generation.
  2. Alignment of family interests. Alignment of interests between current owners and others becomes more pronounced as members retire and turn over the reins to the new generation, while at the same time looking to the company for their retirement income.
  3. Balancing of financial returns. Creating buyout agreements is challenging. When the retiring generation looks to the value of their interest, they sometimes tend to look to a balance sheet number. In fact, the true value of a business should probably be based on an earnings capitalization model, a concept unfamiliar to many smaller family companies.
  4. Interfamily disputes. The interest of one family member may not be aligned with another family member. These situations can become even more difficult where there is, for example, a divorce of a family owner or a death and the surviving spouse is holding stock (and voting rights) but is not involved in the business.
  5. Estate and Inheritance issues. These include taxes and probate delays upon the death of a family owner.

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