Having a Succession Plan is Important

A closely held business, especially a family business, needs a succession plan. A succession plan should be part of an overall business plan, just like profit and loss projections, product and marketing plans. Questions such as: Who will take over when the owner retires? Will the business be sold? To a co-owner? To an outsider? Who are the possible buyers? When will the business be sold? All of these questions need to be addressed.

Consulting with advisors, CPAs and attorneys, the business owner should discuss options as to how the succession plan can be implemented. Some options include the following:

  • Sale using an installment note
  • Gift, typically used to transfer the ownership, or part of the ownership, to a family member or members
  • Stock bonuses to employees
  • Stock Redemption Agreements with co-owners

Part of the planning process involves valuing the business. If the owner wants to sell to an outsider, he or she should plan to spend time making the business, both in terms of its assets and financial projections, attractive to a purchaser to maximize the sale price.

The business’s CPA can provide valuable assistance to the business owner regarding analysis of the business and ways to improve its sales price. The business’s attorney can also provide an analysis for the business. In order to prepare for a meeting with the business’ attorney, the owner should put together a package including the minute book, all employment agreements, all contracts and leases, a list of all equipment including whether it is leased or owned, if it has been given as security for a loan (is it listed as security on a UCC-1?), a list of any actual or threatened litigation and a customer list.

Planning takes time, thought and periodic review as goals and situations change. The succession plan should be fluid to take into account these changes as they occur. The time to start planning is before an illness, death or disaster occurs. Start by putting your team together now, consisting of your attorney, your CPA and your banker, and discuss your options with them sooner rather than later. You will have more options if you do.

One client was galvanized into action when I asked him what would happen to his partner’s interest in the business if the partner died first (the business did not have a Buy-Sell Agreement in place). The answer was that his partner left everything to his wife in his Will, thus, making his partner’s wife his new business partner! The business now has a Buy-Sell Agreement which protects both partners, defines how the business will be valued, sets out the mechanics of the buy-out, and has key-man life insurance in place to pay to the spouse of a deceased partner.

You are in control while you are alive, so take this opportunity to plan for what you want to happen to the business after you are gone.


If you are a resident of Winchester, VA, Frederick County, Northern Virginia, or anywhere in between and are looking for an attorney with experience in business law, estate planning, equine law, real estate law, or civil litigation, contact Joan Fine today.