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Business Succession Planning and the Importance of Teamwork

Gary Pittsford, CFP®

Director of Financial Education

Last Updated
July 13, 2022
Younger and older businessman talking about documents during meeting

Tips for Choosing Your Succession Planning Advisors

When preparing for the sale of your business, one of the most important decisions you will make is choosing a team of trusted advisors. You’ll need to work with qualified, experienced advisors who can help you navigate the challenges of establishing income security in retirement, mitigating taxes for both you and your business, ensuring all legal documents are in place, identifying and transitioning to a new owner, investing the assets from the sale for retirement income, and much more. We typically recommend establishing a team three to five years before the anticipated sale. This way, you have time to implement strategies, clean up your business financials and establish a plan for the sale. Consider including the following professionals on your team.

  • Accountant – A qualified accountant will help minimize your personal and business tax liability. Be sure to choose someone who has significant experience navigating this type of transaction. Before the sale, your accountant should offer specific ideas on how to structure the sale to minimize taxes. Following the sale, your accountant will document how the sales proceeds will be taxed. Your accountant should be able to answer the following questions:
    • What proceeds will be taxed as long-term capital gains versus
      ordinary income?
    • Will there be a recapture of depreciation?
    • What is your cost basis of any company stock, and will the sale be
      considered a stock sale or an asset sale for tax purposes?
  • Corporate attorney – A corporate attorney should review all documents and help ensure that you are protected in this sale. Find someone who has experience working with the sale of family businesses. Your attorney will help identify and explain:
    • What assets are being sold and in what manner
    • The exact terms that have been agreed upon by the seller and buyer
    • Any promissory notes or stock gifting strategies that could be implemented
    • The buy-sell agreement controlling the stock transition, if the sale is to other stockholders
  • Estate planning attorney – In addition to a corporate attorney, you may want to consider hiring an estate planning attorney to help create or amend your will, trust and other important documents in preparation for selling one of your biggest assets.
  • Financial advisor – It’s important to work with a financial advisor who can help you make decisions regarding the long-term management of your sales proceeds and retirement assets. When you sell your business, you’ll need to transition from having a salary and profits to living off your investments and other assets.

Be sure you choose a fiduciary financial advisor who will put your best interests first. An advisor with experience guiding clients through business sales can help:

  • Negotiate the sale of business with your attorney and accountant
  • Analyze your net worth
  • Prepare retirement income projections and develop a retirement income strategy
  • Protect your net worth
  • Manage the proceeds from your sale for retirement income
  • Make decisions about your personal assets, including IRA income, real estate holdings, and other investment accounts

Your advisor should be willing to work with the other professionals noted above to make sure all aspects of your financial life are working together to help you achieve your goals. During the three years leading you to your sale, you should expect to meet with your team at least two hours a year. Once you have identified a qualified buyer, you will likely meet with your team more often.

At Castle Valuation, we specialize in helping business owners navigate the succession/exit planning process and prepare business valuations. As a division of Creative Planning, a nationally recognized wealth advisory firm, we are supported by a team of credentialed, educated, experienced and
action-oriented advisors, including CERTIFIED FINANCIAL PLANNER™ professionals, certified public accountants, insurance specialists, attorneys and other professionals dedicated to helping you achieve your goals. We work together to help ensure all aspects of your business and personal finances are well cared for.

If you’d like help with succession/exit planning for your business, or for any other financial concerns, please schedule a call.

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This commentary is provided for general information purposes only and should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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