The Ledger: Succession Planning

Tom Hammar, CPA
Senior Tax Manager

For many business owners, succession planning is one of the easiest priorities to postpone. Yet the longer it’s delayed, the fewer options remain when retirement, health issues, or unexpected events arise. Planning your succession is a very vast topic that is much more than financial and tax considerations. But that said, it is not less than these concerns which I will take up over the next few paragraphs. I am speaking to business owners somewhere in the mid-life of their respective business.

Let’s start with what qualities mark a sound succession plan and go from there. Words like continuity, seamless execution, desired outcomes being reached come to mind. Unfortunately, these outcomes are often difficult to achieve because the day-to-day demands of running a business leave little time to address the “what if” questions that succession planning requires. Asking the right questions is essential and these questions include:

1. What are your primary goals for creating a plan? (These can include retirement, family transition, unexpected events, etc. You should always begin a plan with a clear view of the end in mind you desire.)

2. Have you identified potential successors? (Use a very big net here. Rate all options: family members, key employees, customers, current competitors, business broker, etc.)

3. Do you have a ballpark business value established? (A business valuation provides the foundation for succession and tax planning. At CTI, we help clients estimate the value of their business and identify strategies that can improve that value over time. A business valuation is a good starting point for tax planning and deciding if selling your business at this value and paying related taxes will accomplish long term financial security for you. Piggybacking on this question is what are the most important things you can be doing now to get to a higher valuation).

We at CTI would love to work with you as part of your business team of trusted advisors with the task of making a formal succession plan. The team often will include your business attorney and personal financial advisor. You will be amazed at how motivating a good succession plan can be not only to you but also other key stakeholders.