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BUSINESS EXIT & SUCCESSION PLANNING:A VALUABLE SERVICE TO ADD TO YOUR CPA PRACTICE

B U S I N E S S E X I T A N D S U C C E S S I O N P L A N N I N G C O M M I T T E E

S E P T 2 0 1 3

SUCCESSION VS. ESTATE VS. EXIT PLANNING

SEPT 2013Business Exit & Succession Planning Committee

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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


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This usually involves the transition of both

ownership and management

responsibilities and should usually be

done before estate and succession

planning.

WHY SUCCESSION PLANNING?

Overwhelming raw statistics from a number of studies and articles:

They need help. Consider the rates of succession statistics:


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• 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

• 30% survive into second generation

• 12% survive into third generation

• 3% operate into fourth generation

WHY SUCCESSION PLANNING? (CONT’D)

•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

There appear to be some

reasons why they need

help

• 2007 American Family Business Survey:• #1 of top 10 challenges facing Family

Businesses today = succession• Same survey: spouse is closest advisor;

accountant is next

Owners know the issue; and

CPA’s are perfectly

positioned


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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)

A written Exit Plan based on the

owner’s objectives

An experienced team of advisors

to design and implement the

plan

Time

Ingredients of a Successful Exit Plan:


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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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• 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

WHY THE CPA’S ROLE IS CRITICAL

Can help document the

overall processes

Coordinates other outside advisers

(legal, estate, asset managers, etc.)

Provides a very objective viewpoint

Inner Sanctum Access- you are the “trusted advisor”; you should be a critical piece of the

Succession and Exit Planning Process

CAPABLE OF “OWNING”

Knows the business and the numbers

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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 methodolog

y 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 resource

s and needs

Maximize and protect busine

ss values

Ownership

transfer to third

parties

Ownership transfer to inside

rs

Business

continuity

Personal

wealth and

estate plannin

g


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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.

[email protected]


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NYSSCPA SEPT 2013

NYSSCPA Business Exit & Succession Planning Committee13

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