As the economy begins to show signs of improvement, business owners can step back, take a deep breath and focus on the future of their business.  Over the last few years, because of the economic conditions business owners have concentrated their efforts on the immediate needs of their businesses – sales, cash flow, debt management and personnel staffing to name just a few.

With most of the immediate “fires” under control, business owners can now focus on strategic thinking for the new year and beyond.  Succession planning, which may have been put on the back burner the last few years, should now be a focus of any business owner’s strategic planning process. Considering these key components of a business succession plan is a great starting point.

An effective succession plan will consider not only the goals and financial needs of the business and owner(s), but will also include an analysis of strategies to minimize income taxes and future estate taxes as well as provide planning for the next generation of leaders and owners. Business and personal goals and objectives should be reviewed and modified as appropriate considering current conditions.

Legal documents including buy-sell agreements, employee agreements and those related to estate planning should be updated or prepared as needed.  A business valuation will be needed to understand the company’s value and economics of the business operation and is critical to the overall succession planning process.

A succession plan will also address the human resource side of the business and include an assessment of the current management team both to help identify potential future leaders and/or potential owners of the company as well as assess the strengths and weaknesses of the company.  Often a SWOT analysis is a good starting point in this assessment. As the process unfolds, it becomes clearer to the owner if the current management team and possibly a group of employees will be a realistic option when considering transition strategies. Children or other relatives may become an option if they are involved or want to be involved in the family business and gifting to children may be a part of the solution.

Occasionally, a sale to a third party may be the only feasible solution.  In a small percentage of cases, to make this a realistic option, there is a need for a tuck-in acquisition prior to the ultimate sale of the business.  An acquisition is typically not considered by an owner when developing his succession plan, but an acquisition today can increase the future sale price of the business.  (We will discuss this issue more in depth in an upcoming newsletter.) Strategies like this add a great deal of time to the preparation period of a succession plan so beginning early is clearly helpful.

Succession planning is a dynamic process involving many key components.  Begin the process today by reviewing the starter kit checklist we have provided below with your succession planning advisor. For more information on business succession planning and how Apple Growth Partners can help, please contact our business succession planning team.

Business Succession Planning
Starter Kit Checklist
__ Identify succession planning goals both personal and business

__ Prepare personal financial statements

__ Review personal tax strategies

__ Review current estate plan

__ Identify cash flow needs in retirement

__ Obtain a valuation for the business

__ Consider initial exit options

__ Review business tax strategies

__ Assess current management team capabilities

__ Review compensation plans of key employees

__ Review employment agreements of key employees

__ Review and update key Company legal documents

__ Review current buy-sell agreement (ESPECIALLY LANGUAGE REGARDING VALUATION)

__ Consider forming a business advisory board