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Business Succession Planning - The Key to Profitably and Confidently Passing Off the Baton Part 2

by Jeff Roberts posted Jun 15 2016 8:43 PM

Business Succession Planning

The Key to Profitably and Confidently Passing Off the Baton

Part 2


In our last Newsletter, we presented the first of a three part series of articles discussing Business Succession Planning.  This is the second part of that series


Inevitably, every business owner will leave the business.  You will either transfer ownership of the business during your lifetime because you want to retire.  Or you will die or become disabled and the business will have to be liquidated unless you have put in place effective blueprint for your business’s ongoing operation.  Without a proper business exit strategy, the involuntary loss of a key person could ruin a business by forcing its liquidation at a chaotic time. As a result, an important part of your financial and estate plan should be proper exit planning. This type of planning, commonly called “business succession planning,” consists of six important steps:


Step #1:  Set financial goals.  The first step in creating a viable business exit plan and strategy is to determine your long term income needs and retirement goals. From this, you can determine how much money the sale of the business must generate for you to retire comfortably.


Step #2:  Determine the current value of your business.  Once you set out your long-term financial goals, the next step in your exit plan is to determine the current fair market value of your business. You do this by analyzing the company’s books and comparing it’s profits and losses with similar businesses in the area. The current value will then dictate whether the next step is necessary and, in turn, the estimated time frame for your exit from the business.


Step #3:  Build business value.  If the value of your business is what you expected, then your exit will likely fall in line with the goals you established in Step #1. However, if the business’s value is not as much as you expected, then you need to stay active in the business to increase its value to the level that will allow you to leave the business comfortably. This will be the time when you look at ways to increase the business’s value by driving revenues and minimizing expenses (including tax planning).


Step #4:  Sell the business.  Once you determine your time frame for leaving the business, you should examine the pros and cons of selling the business to an outside third party or to insiders, such as family members or key employees. The type of purchaser will dictate future employee compensation and incentive packages and tax planning strategies for minimizing capital gains.


Step #5:  Create a contingency plan.  Even when you have a comprehensive exit plan in place, things can go wrong. You could become physically or mentally disabled, a key employee could leave or die, or a fire or hurricane could destroy your business. You should build your business exit plan around these and other unexpected situations.  As part of a contingency plan, you should include a buy-sell agreement, employee incentive programs, and purchasing business, disability and life insurance.


Step #6:  Plan for your passing.  Once you have both a comprehensive business exit plan and a contingency strategy in place, you can focus on your overall estate planning goals. Much of the estate plan may be tied directly to the sale of the business if it is to be sold to one or more family members.  This, in turn, will have a significant impact on your estate plan. On the other hand, once the business is actually sold, your financial position and holdings will change dramatically from what they were while you still owned the business. As a result, you must look at your estate plan during every phase of the business exit plan and update it accordingly.


Your business succession plan should be a key part of your asset protection planning, estate planning and retirement planning.


Creating your business succession plan right now could provide you with retirement income, lower income and estate taxes – even the opportunity to donate money to a charity.  And all this could be yours regardless of whether you transfer your business to family members, employees, or a third-party buyer.


In our next Newsletter, we will conclude the three part series of articles on Business Succession Planning with a summary of the Five Ways to Transition Out of Your Business.



You’re Invited to Call or E-mail.


“If you have questions about owning and operating a business, please send your e-mail to

[email protected] or call me at 618.639.0461.

I’ll be happy to help you in every way.” -- Jeff


Jeffrey D. Roberts

Attorney at Law w CPA w Entrepreneur




300 Commerce | Jerseyville, IL 62052  618.639.0461

2410 State | Alton, IL 62002 618.466.2782