BUSINESS EXIT &
SUCCESSION PLANNING:
A VALUABLE SERVICE TO ADD TO YOUR CPA PRACTICE
BUSINESS EXIT AND SUCCESSION
PLANNING COMMITTEE
SEPT 2013
SUCCESSION VS. ESTATE VS. EXIT
PLANNING
Succession Planning is a formalized process to successfully transfer company
leadership from Current Management (CM) to Successor Management (SM).
It is designed to ensure the ongoing viability of the company.
Estate Planning is a process designed to successfully transfer company
ownership (wealth) from current shareholders to future shareholders (or
others). It is designed to address the personal goals of shareholders and is
structured to achieve the most economic and tax efficient result possible.
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SUCCESSION VS. ESTATE VS. EXIT (CONT’D)
• Exit Planning:
process an
entrepreneur goes
through to
determine his/her
plan to leave the
business
This usually involves the
transition of both
ownership and
management
responsibilities and
should usually be done
before estate and
succession planning.
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WHY SUCCESSION PLANNING?
Overwhelming raw statistics from a number of studies and articles:
•
•
•
Family businesses comprise 80-90% of all business enterprises
in the U.S.
40% of family companies say they will transition leadership in
next five years
88% say same family(ies) will control business in five years
They need help. Consider the rates of succession statistics:
•
•
•
30% survive into second generation
12% survive into third generation
3% operate into fourth generation
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WHY SUCCESSION PLANNING? (CONT’D)
There appear
to be some
reasons why
they need help
Owners know
the issue; and
CPA’s are
perfectly
positioned
•40% of family companies that will transition
in next five years are without a “how to” plan
•Less than 2/3 of significant holders in
family business know senior generations’
share transfer intentions
•2007 American Family Business Survey:
• #1 of top 10 challenges facing Family Businesses
today = succession
• Same survey: spouse is closest advisor;
accountant is next
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WHY SUCCESSION PLANNING? (CONT’D)
Without a plan or process, most
entrepreneurs and management teams
hope succession will happen-hope is not a strategy
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WHY EXIT PLANNING?
Exit Planning is a proven process
that can maximize the financial
return, minimize the tax liability,
plan for contingencies and
increase the likelihood of a
successful transfer of a business
85% of all small business
owners do not have an exit plan,
a wealth management plan,
and/or an advisory team to
assist them
Very few start the process early
enough to achieve the maximum
benefit of exit planning
Most entrepreneurs wait too long;
instead make the “end game”
part of your overall operating
strategy
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WHY EXIT PLANNING? (CONT’D)
Ingredients of a Successful Exit Plan:
A written Exit
Plan based on
the owner’s
objectives
A strong
management
team in place
An experienced
team of advisors
to design and
implement the
plan
Time
Cash flow and a
quantified
business value
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WHY EXIT PLANNING? (CONT’D)
Most business owners spend more time
planning a family vacation than how to exit
from their business
This is not due to a lack of desire or
intelligence. It is simply because they don’t
know how or where to begin
The vast majority of owners are unaware
there is a specific planning and
implementation process that can help
ensure they achieve their objectives
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WHY THE CPA’S ROLE IS CRITICAL
CAPABLE OF “OWNING”
Can help
document the
overall processes
Coordinates other outside
advisers (legal, estate,
asset managers, etc.)
•
Has good feel for
leadership style of
potential successor; can
bridge the generations
(and keep the client)
•
Will be more company
versus personality/ family
member focused
Provides a very objective
viewpoint
Knows the business and the numbers
Inner Sanctum Access- you are the “trusted advisor”;
you should be a critical piece of the Succession and
Exit Planning Process
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SUCCESSION PLANNING PROCESS
Seven step documented process to achieve successful
transfer from Current Management (CM) to Successor
Management (SM):
Determine how
the succession
planning process
will work
including a
communication
plan
Consider the
view of the CM
including
objectives, timing
and personal
matters
Determine the
financial needs
of the CM who is
retiring and the
viability of the
business to
support those
needs
Consider the
potential SM
including
capabilities,
comfort with
supervising
former peers and
role acceptance
Understand the
role family
members will
play in the
company
including those
outside the
business and
future family
members
Maintain a
process which
provides for
periodic reviews
to determine
viability of the
Succession Plan
including after
the plan is in
place and is
being executed
Incorporate an
appropriate
methodology for
transferring
wealth in
accordance with
current
shareholders’
desires
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EXIT PLANNING PROCESS
Identify
owner exit
objectives
Quantify
business
and
personal
financial
resources
and needs
Maximize
and protect
business
values
Ownership
transfer to
third
parties
Ownership
transfer to
insiders
Business
continuity
Personal
wealth and
estate
planning
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NEXT STEPS?
Business Exit & Succession Planning involves many skillsets and capabilities; some of
which just come from experience. The best and easiest thing to do is to join the
Business Exit & Succession Planning Committee of the NYSSCPA. The purpose of
this Committee is to educate CPA’s on these subjects.
If you are interested, please reach out to the Chairman, Bernie Leone or any
committee member listed on the NYSSCPA website.
bleone@withum.com
212-829-3207
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