Succession Planning – the Sale of a Business

Planning for the Sale of a Business

 In succession Planning – the Sales of a Business, we’ve provide the outline of a checklist of things to consider:

What are the Owner’s Personal Goals

q  Consider retirement/using the business to provide security for the family, etc.

q  Key issue: how does the business fit within those goals?      

q  Will the owner be able to will/gift the business to the family?

q  Is owner dependent business income for costs of living?       

q  Does owner have resources to live independent of the business?


In Most Situations the Owner is Dependent on the Business

Owner must continue to work or it must be sold (cashed out).


Determining Accurate Business Value is Key

q  Once value is determined, compare to owners goals/needs.      

q  Supplemental steps may need to be taken.


Steps to Take for Any Sale Plan

q  Determine and groom an appropriate successor.                 

q  “Sell” the plan to the appropriate parties.                   

q  Determine appropriate sales method:                           

  1. 1.    Cross purchase (agreement between owners);                 
  2. 2.    Redemption (agreement between owners/business);            
  3. 3.    “Wait and see, buy-sell (Buy-sell is in place but method determined at a later date).                            


Execute binding buy-sell agreement that can handle all contingencies:

lifetime sale;

sale at death;

sale in case of disability.

If Business Value Cannot Support Goals, Consider Alternatives

q  Remaining with the business, drawing salary beyond normal retirement.

q  Issues in this situation:

  1. 1.    Will owner pass operations management over/continue to draw salary?
  2. 2.    Will owner completely release control of business or interferes with daily operations?
  3. 3.    Will management retain dollars for expansion/investment, while passive owner pulls cash from company?
  4. 4.    What impact will this have on the business value?


Other Alternatives

q  Selling company/receive rental income from company land?      

q  Reaching negotiated agreement/roles passive owner and management will play.

q  Selling the business through an installment sale.


q  Owner may draw during working years and invest to lessen dependence on the business value:        

  1. 1.    qualified plans;
  2. 2.    non-qualified plans;
  3. 3.    private pension plans (executive bonus);
  4. 4.    split dollar arrangements;
  5. 5.    non-qualified deferred compensation.

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