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Succession planning for Boomer business owners

Russell White //August 14, 2014//

Succession planning for Boomer business owners

Russell White //August 14, 2014//

This is the year the last of the Baby Boomer generation turns 50, and in the coming years we’ll see more and more Boomers retire and sell off their businesses. In fact, from the end of 2012 through 2013, Boomer retirement was the number one reason why businesses were sold in the U.S. According to the most recent Wells Fargo/Gallup Small Business Index, more than half of business owners say the best time to sell their business is in the next one to 10 years.

Will they be ready?
To successfully transition a business, business owners need a plan. This means having a team of qualified professionals, such as an accountant, attorney and a banker, who can help owners walk through a number of succession planning considerations, including:

Building Value. In most other areas of the business there are formal processes and plans that are followed to reduce cost and uncertainties and build value (e.g., working leads, recruiting talent and tracking job costs). Succession planning should also be a step-by-step process to mitigate risk and build value. The first step of the process is to identify key decision-makers and succession planning goals and objectives.

Communicating Goals and Objectives. Communicating the succession plan goals and objectives with key members of the organization is vital. A misstep in communication could cause costly disruptions among key employees or family members as well as stress for external vendors. If the succession plan contemplates transfer to a third party buyer, think about how to keep key stakeholders incentivized and informed throughout the transition.

Grooming a Successor. Once the goals and objectives have been discussed and agreed upon, choosing and grooming a successor follows. This is an important piece of the succession plan because it is the successor that needs to be able to utilize the owner’s intangible assets. The owner has knowledge, skills, and relationships that other employees may not possess – and the owner must transfer all of this to the successor. This is a process that should be done over a year or more. Qualities and aspects that owners should look for when evaluating potential successors are industry expertise, vendor relationships, type of core values, ability to lead, and energy.

Transferring Ownership. The next and most complex step is to decide how to transfer ownership. The options include but are not limited to gifting stock, Section 303 stock redemptions, buy-sell agreements, employee stock ownership plans, and stock recapitalization. To help identify the option that works for you and your company, speak with your CPA or an attorney who specializes in transfer of ownership transactions.

Estate Planning. Estate planning should be considered throughout the succession planning process and discussed with your attorney and accountant. Estate planning is an integral part of each different transfer of ownership option above. During this process, ask questions such as:

  • What do I want to leave to my family?
  • Do I have the financial capacity to retire?
  • What are the tax consequences of my succession plan and beyond?

It’s never too early for a business owner to think about his or her succession plan. This process can be time-consuming, so it’s important to be ready when the time comes to make a transition.