Business Succession

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As the owner of a going and prosperous business, you have worked hard to ensure its place in the industry and its financial success. You may be planning to retire and realize the value of your hard work. Or you may be planning to exit the business to start a new one. You may want to leave the business to the next generation of your family. Or you may want to realize the value by selling the business to a third party or by merging with another enterprise.

You should be aware, however, that of the businesses in the U.S (90% of which are family owned) only about 30% make it to the third generation, and only about 15% of the original number survive into the forth generation.

There are many reasons for this, including internal family disputes that may have lasted decades, as well as the lack of interest by succeeding generations in continuing to be involved with the business or a shortage of
management capability within the family. There may be other reasons, for example, little depth in the ranks of current management and a lack of a clear consensus on who should run the business after the original owner leaves or dies.Therefore you cannot expect to realize the maximum value of your business or ensure its continuity unless you have a business succession plan in place, and keep it up-to-date as developments within the business, and the economic and industry environment change.

Good Succession Planning is Dynamic

Succession planning is not static. Planning is something you must address as the business environment, taxes, regulations and the value of your business changes. As a conscientious business leader, you must continually revisit your plan, reviewing and updating your plan and plan documents to reflect the current value of your company, market conditions, regulatory and tax environment, and the abilities and interest of the people you plan to pass it on to.
If you intend to transfer your business to members of your family, the complexities of family dynamics on your succession plan must also be taken into consideration and often business owners must make a very objective evaluation of how family members’ personal conflicts, that could date back decades, may impact the ongoing success of your business once you are no longer at the helm.
Business advisers who have developed a workable and reliable strategy for succession planning will insist that you start early. Owners need to plan for who is going to run the company, who is going to own it, and how taxes will be minimized. Each will require different planning techniques, and trade-offs are inevitable. The earlier you begin your plan the more likely you are to be able to plan for an orderly transition, and to maximize the value of the business and the proceeds to you.

Early and Continuous Planning are Crucial

Early planning is critical to the business succession process. Early and ongoing planning enables you to have a significant influence over the transition of the business to new owners and/or new management; and provide for the financial needs of you and your family.
According to a study by the National Association of Corporate Directors, less than 25% of private company boards say they have a formal succession plan.
Don’t get caught short when the need for business succession actually arises. Operating without a succession plan can cause uncertainty for the business and endanger future competitiveness. For family-owned or controlled businesses, succession issues also often involve deeply emotional issues among family members, key employees and other company stakeholders.
The best way to ensure a company’s future, its financial stability and its continued competitiveness in its industry when a succession is involved is to have a succession plan in place and to keep it up-to-date with respect to issues within the company, the industry and the economy, as well as tax-related issues including estate tax considerations.

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How Bedrock Helps You to Plan for Succession

Bedrock Investment Advisors helps companies like yours to ensure that succession will take place in a systematic and orderly way – a way that helps to maximize the value of the enterprise, whether it is retained within the family or whether it is sold to another investor or business.

If a new management group is not prepared to take over the business, this can result in a substantial loss in value. If current owners and managers want the intrinsic value of the business to remain intact for the benefit of their successors, they should have a continually up-to-date succession plan on hand at all times.
A good succession plan should cover a number of critical issues, including:

  • Defining your personal goals for the succession, and a vision for the transfer of ownership and management.
  • Do you have a likely successor in place?
  • Have you resolved any outstanding family issues that could stand in the way of an orderly succession of the company?
  • Do you have a strategy to reduce estate taxes?
  • Do you have a buy-sell agreement in place?
  • Do you have a contingency plan in case the business owner (you) die or become incapacitated?
  • Do you have alternative strategies for corporate structures or stock-transfer techniques that could help achieve the company’s succession objectives while reducing tax liabilities?
  • Do you have an up-to-date valuation of the business available so that the business can be sold or merged, or the assets otherwise transferred with the most profitable outcome?

The Bedrock Succession Plan Process

Bedrock Financial Advisors will help you to respond to these and other related issues with an integrated succession plan that includes the following aspects, among others:

  • An elaboration of goals and objectives for business succession
  • An assessment of your firm’s business strategy going forward
  • Assessment of management within the firm, and identification of individuals who may have the experience and capabilities to take over the reins or move up within the organization
  • An up-to-date business valuation
  • The current state of your retirement plan
  • Analysis of any shareholder or partnership agreements, and updates if necessary
  • Analysis of current compensation for key employees, and plans for their future compensation
  • Consideration of potential exit strategies, including sale of the business, merger with another firm, transfer of shares of the business to current family members or employees (e.g., ESOPs), etc.

The Bedrock Solutions

The future of your business as well as your own financial security, are on the line as your business proceeds toward transition and succession. Do you want to maximize the value of your business going forward and ensure as much as possible the likelihood of the business’s success into the next and succeeding generations?
Bedrock’s comprehensive business and financial advisory services can help you to find answers to these questions and others. Bedrock will help you look ahead to manage your business’s transition. It is our objective to fully meet the needs of family business owners who are looking for financial security in the future and hoping to ensure that their business continues and prospers going forward to the greatest extent possible