Succession Planning

It is never too early to start thinking about succession planning.  All business owners eventually reach a point where they want to retire, they want to slow down, they want to try their hand at something new, they want to give the younger generation a chance to show their stuff or they just want to cash out.  In every case, it is a smoother and generally more profitable transition if the owners have taken the time to plan and think through what is required to successfully transition their business.

Succession planning may involve sale of the business.  But to whom?  To employees?  To family?  To suppliers?  To customers?  To competitors?  And for how much?  Is there a reasonable methodology for setting the value of the business?  Succession planning may involve gifts to spouse, children and grandchildren.  But are they competent to run the business?  Is the management staff competent and loyal enough to work with inexperienced family members while they come up to speed?Succession planning may involve stock options or deferred compensation or other bonus arrangements for key employees designed to keep them on board after the owners have moved on.  Do you have a group of employees who have the experience and skill to run the business after you are gone?  Have you given them the ownership and/or compensation incentives needed to win their loyalty and keep them on board?

Succession planning may involve employee stock ownership plans (“ESOPs”).  By using  a ESOP vehicle, business owners may be able to create a market for their stock where no market otherwise exists, and may be able to sell their stock to such ESOP in a tax-advantaged away.  But ESOPs are somewhat complicated and costly to set-up and maintain, and you need to consider whether the possible upfront tax savings are worth the cost and administrative complexities inherent in such arrangements.

There are many other issues related to succession planning that need to be considered including valuation of the company stock, use of valuation discounts, use of stock redemption or buy-sell agreements, use of employee non-compete agreements, training of future management, etc.  More about succession planning issues will follow in future blogs.  Please give me a call if you want to discuss succession planning and how we can help you. or 937-223-1130.

The American Red Cross is an important part of our national disaster recovery system.  In light of the recent natural disasters and the terrorist attacks our country has endured, the importance of supporting Red Cross and its missions cannot be overstated.  Our local chapter of American Red Cross is organizing a gala, Putting on the Glitz, as a fundraiser to benefit disaster relief and preparedness in the Miami Valley. The event will take place Saturday, April 27, 2013 with the theme, “Providing Hope Like a Bridge Over Troubled Water.”    You can  donate/vote by clicking on the donate link. Thanks for your support for this great cause.
AUTHOR: Jeff Senney