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Owner Succession Planning - PowerPoint PPT Presentation

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Owner Succession Planning. Presenters: Scott A. Isdaner, CPA, JD Jim Hamlet, CPA, MT Isdaner & Company, LLC (610) 668-4200. Your Unique Qualities. Financial interdependence – business’s financial success depends on the owner

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Owner succession planning l.jpg

Owner Succession Planning


Scott A. Isdaner, CPA, JD

Jim Hamlet, CPA, MT

Isdaner & Company, LLC

(610) 668-4200

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Your Unique Qualities

  • Financial interdependence – business’s financial success depends on the owner

  • Emotional investment – invested many years of hard work, source of family identity, difficult to give up control

  • Family/business overlap – working with relatives

  • Major portion of owner’s wealth – illiquidity problem

  • Co-Owners’ Considerations

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Goals of Owners

  • Family Harmony

  • Perpetuate the business

  • Financial security for retirement/disability

  • Financial security for surviving family members

  • Reduce taxes

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Entity Issues

  • Partnership, Corporation, Sole Proprietor

  • Identify legal entity

  • Determine rules regardless of form of legal entity

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Factors to Consider

  • Role family may play in the succession of management

  • Economic requirements for retirement and timing issues

  • Your professional role: active or inactive

  • Providing for management, employees, customers and suppliers

  • Financial requirements for dependent family members

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Benefits of Effective Plan

  • Smooth transition

  • Improved communication with family, employees, customers and suppliers

  • Commitment to future success

  • Happier work environment

  • More financial security

  • Improves customer loyalty

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Exit Strategies

  • Sell company to competitor, third party buyer, management team

  • Gift shares to children or relatives in business

  • Liquidate the company and sell assets

  • Do nothing – let heirs worry about it

  • Sell interest in the entity to operating partner

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Preparing for Ownership Transition

  • Develop competent management successors

  • Retain key employees

  • Select time frame for transfer

  • Communicate to employees, customers and suppliers

  • Transfers to children and/or relatives

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Preparing for Ownership Transition

  • Review method for valuing your business

  • Establish an estate plan

  • Determine tax strategies

  • Fund an effective business succession plan

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Valuation Issues

  • Valuation methods

  • Discounts

  • Independent Appraiser

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Establishing an Estate Plan

  • Integration of estate and succession plans

  • Transfering business -Will or buy-sell agreement considerations

  • Funding issues: life insurance and buy-sell agreement

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For Most Favorable Estate Tax Treatment

  • Cap the tax liability with an estate freeze

  • Use of family trust

  • Gifting

  • Creation of Family Limited Partnership

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Income Tax Considerations

  • Allocation of purchase price

  • Capital gains vs. ordinary income

  • Stock vs. asset sale

  • Basis on death

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Funding an Effective Plan


  • Cash on hand

  • Borrow

  • Sale of assets

  • Insurance

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Buy-Sell Agreement

  • Cross purchase vs. redemption

  • Funding source

  • Legal issues

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Death or Disability

  • Spouses, estates

  • Definition of total or permanent disability

  • Mandatory purchase and sale

  • Right of first refusal

  • Proportionality if more than one purchaser

  • Mandatory purchase by organization

  • Valuation

  • Payment terms

  • Funding

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Funding an Effective Plan


  • Immediate impact – individual and family needs vs. business needs, continue salary vs. impact on company profits, family takes care of disabled vs. others on job helping

  • Long-term impact – hire replacement, continue salary, buy-out partner


  • Family issues vs. business continuity

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Funding an Effective Plan


  • Group Disability

  • Supplemental Disability

  • Business Overhead Expense

  • Disability Buy-Out

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Funding an Effective Plan


  • Life insurance provides family financial independence and business capital to continue

  • Key man insurance