Succession Planning Cheat Sheet

Succession planning can seem like an overwhelming process, especially when you’re in the early stages of considering the transition. The following list of questions is designed to help you organize your thoughts as you determine the proper strategy for transitioning your business.

Personal Goals

What are your goals for retirement and how much money will you need on an annual basis to achieve these goals?
Besides your retirement savings, what sources of income will you have in retirement (e.g. rents, social security, pension, etc.)? Will these sources be sufficient to meet your retirement goals?
If not, how much additional retirement savings will you need to ensure that you can meet your goals? -Do you already have a sufficient nest egg or, if not, how far short are you?
Are you comfortable spending a portion of the principal of your retirement savings each year or do you desire to simply let earnings on those savings make up the shortfall?
When do you want the succession planning process to begin? When should it be completed?

Business Goals

-Do you know how much your business is worth? Do you have an independent estimate of value? When was it completed?

-How important is it to you that, after your retirement, your business remains an independent entity? Is that an emotional or perceived financial issue? Do you want your business to remain in your family?

-If your deisre is for the business to remain independent:

-Who are your successors (managers and owners)?

-What roles will they play?

-What training will be required?

-Will you remain involved? In what capacity? For how long?

Estate Planning

-Is your estate plan updated (i.e. living trust, powers of attorney, etc.)? Does it ensure your that your estate will avoid probate?

-If there are other owners in your business, do you have a buy-sell agreement? When was it last reviewed?

-If you have a family owned business, are there family members who are not active in the business? If so, will they inherit an equitable share of assets?

Tax Considerations

-How will the transfer of the business affect your taxes? The business’ taxes? The successors’ taxes?

-Will you run into estate tax issues upon your death? If so, have you figured out how to pay for those, or how to avoid them?

Method of Transfer

-If you’re planning to sell the business to a third party, will you sell the actual stock or the assets of the business? How will the buyer finance the purchase?

-If you’re planning to retain the business, can you take advantage of gifts? Bequest? Discounted sales? Options? Combination of choices?

You don’t have to have all the answers before you start putting your plan in place, but the more you consider these issues, the easier the process will be. Ultimately, a proper succession plan will: 1) leave you in control for as long as you wish, 2) set expectations for all involved, and 3) avoid unnecessary taxes on the transfer.