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Picking Your Succession Planning Advisors

Gary Pittsford, CFP®

Director of Financial Education

Last Updated
October 31, 2022
Senior with his succession planning advisors

Three Team Members to Not Overlook

Regardless of who is going to buy your business (a family member, a key employee or someone else in the industry), the advisors you choose to work with will be instrumental to the successful transition of your company.

It’s important to start identifying your team of advisors three to five years before you intend to sell or transition your business. Leading up to the sale, you’ll want to spend some time each year with your advisors, discussing planning ideas and what you can do to prepare your company. You’ll also want to ensure your advisors speak with each other and operate as a team.

Accountants

Tax planning is vital to every aspect of this pending transaction. You’ll want to make sure your accountant has been through this type of transaction many times before and knows all appropriate options for both the company’s tax return and your personal tax return. It’s possible you’ll have to use different accountants for your personal and business tax needs to ensure you’re working with someone who has the right experience for each.

Attorneys

Legal documents will be important during this process. They’ll explain exactly what and how assets are being sold, what the buyer is bringing to the table and all the terms that have been agreed to by the seller and buyer.

If you’re selling the company to one of your children, there may be some promissory notes and stock gifting involved. If the sale is to a family member or key employee, it will be important to have a buy-sell agreement prepared in order to control the transition of the stock over several years. If you’re selling to someone else in the industry, a sale may be for all cash, and the legal documents will outline in detail the value of the assets for the new owner to start depreciating.

It’s common in these transactions to have not only a corporate attorney, who is familiar with preparing all the corporate documents, but also an estate planning attorney, who can assist with changes to wills and trust documents as well as help with the buy-sell agreement. When selling your company is a good time to update these estate documents.

Financial Advisor

Find a financial advisor who can not only help you with decisions pertaining to assets that would be coming out of the company to you but also help with the long-term management of sale proceeds and your retirement assets. During this process, you’ll be moving from having a salary and corporate profits each year to having income generated by your sale proceeds and the personal investments you’ve accumulated over the years. This is a big adjustment for most business owners, and that’s why it’s important to begin planning at least two or three years before the sale. A financial advisor will help you plan for the sale proceeds you may receive and help you make decisions around your personal assets (such as qualified retirement accounts, income from your real estate holdings and all other assets that may produce income for you and your spouse). It’s important for you to keep the cost of managing your assets as low as possible.

Designing a smooth transition to the new buyer of your choice isn’t simple. In this transition, you’ll want to minimize taxes and maximize the amount of cash you receive from the sale. The way to accomplish all these goals is by having a trustworthy advisory team to help you start planning for this important milestone.

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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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