Starting now for change in years ahead is critical

[caption id="attachment_18842" align="alignright" width="108" caption="John Whiting"][/caption]

By all accounts, the economy is turning around. If you’re a business owner, congratulations: You made it through the worst, your business survived, and you’re wiser for it.

So now what?

After weathering the past few years, many business owners are eying retirement and thinking sunny beaches sound like more fun than withstanding yet another down business cycle. But how do you get from Point A to Retirement with enough financial security to last you while protecting your family’s future?

Your business and personal wealth are intertwined. Business owners that take the time to plan a successful transition of their business may maximize the value of their company, potentially minimize their taxes, and develop a well-designed strategy for future financial independence and wealth transfer.

Below are some initial questions that you should to be able to answer to better position yourself when it comes time to plan—and ultimately negotiate—a business transition.

How much longer do I want to be actively involved in my business?

It’s imperative to avoid the “in about five years” response and thereby put off planning. Most successful transactions or transitions take time. The trap many owners fall into is that by not being proactive in their planning, they become reactive to someone else’s plan. Rarely does this work to the owner’s advantage. To maximize the value of your business, you need to invest some time and money into crafting a well-thought-out plan, regardless of when you plan on retiring.

Who is a likely successor: A strategic buyer, my children, or my employees?

Every industry and company is different. Some companies are great candidates for employee stock ownership plans. Others are better suited for private equity acquisition. Some will be acquired by a strategic buyer. And others might transition to family members.

Pursuing a strategy that isn’t optimal for your industry or your company may yield a lesser value from the transaction. Understanding your market and conducting pre-transaction due diligence is imperative to secure the best option. Although maintaining a legacy might be an important factor for you, it’s equally important to consider whether your company, under the next generation’s management, will confidently be able to pay you what the business is really worth.

If you do plan on a transition to your children, understanding the cash flow of your enterprise is critical. An analysis of the current and projected cash flows can help determine the sales terms your company can support that can benefit you and the next generation in the form of an ongoing, financially sustainable enterprise.

What do I need from a transaction or transition to be financially independent?

This is perhaps the most critical question of all. How much do you need from a deal to know, with reasonable certainty, that you’ll be able to accomplish your life’s goals? Planning for spending in retirement should include a provision for basic living expenses, pre and post-Medicare health care costs, education funding for children or grandchildren, travel costs, replacement vehicles, second homes, weddings, charitable giving, and legacy planning. And don’t forget about taxes. A well-designed plan will also include a provision for the effects of inflation and a conservative projection of the rate of growth for your investments.

How much is my business really worth?

Although it’s vital to know what you need from a transaction, you also need to be realistic about what your business is actually worth. When the time is right, you should obtain an independent business valuation, because knowing the value of your business before you start negotiating is critical. Additionally, oftentimes a business valuation can help guide you to make necessary strategic changes that can in turn improve the overall value of your business.

What should I be doing now to help reduce my future tax liability?

This is where time is on your side. A good financial plan will tell you how much you’ll likely consume during your lifetime. Armed with this information, you can begin to design a plan for moving assets to future generations using appreciated assets such as your business. For instance, discounts for minority interest in company stock that has been gifted to children and grandchildren can afford you a great opportunity to move appreciated wealth to future generations while potentially minimizing tax liabilities.


Whether you’re considering selling or transitioning your business in the next year or the next five years, it’s not too early to start the succession planning process. Doing so can help you embrace a future free from the financial worries sometimes associated with retirement -- and help you focus on living a long, healthy, and happy life.


John Whiting advises business owners and high net worth individuals on the creation of personal financial plans, business succession solutions, and wealth strategies. As part of the wealth management process, he also provides insurance analysis, estate planning, education planning, and investment consulting services. He can be reached at john.whiting@mossadams.com or at 707- 535-4167.

Jay Silverstein focuses his practice on ownership succession strategies and estate planning for owners of closely held businesses and their families. He has experience with complex business transactions, mergers and reorganizations, entity planning, non-qualified deferred compensation arrangements, and tax controversy. He can be reached at jay.silverstein@mossadams.com or at 707- 535-4115.