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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

Owner Succession Planning


Scott A. Isdaner, CPA, JD

Jim Hamlet, CPA, MT

Isdaner & Company, LLC

(610) 668-4200

your unique qualities
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
goals of owners
Goals of Owners
  • Family Harmony
  • Perpetuate the business
  • Financial security for retirement/disability
  • Financial security for surviving family members
  • Reduce taxes
entity issues
Entity Issues
  • Partnership, Corporation, Sole Proprietor
  • Identify legal entity
  • Determine rules regardless of form of legal entity
factors to consider
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
benefits of effective plan
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
exit strategies
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
preparing for ownership transition
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
preparing for ownership transition9
Preparing for Ownership Transition
  • Review method for valuing your business
  • Establish an estate plan
  • Determine tax strategies
  • Fund an effective business succession plan
valuation issues
Valuation Issues
  • Valuation methods
  • Discounts
  • Independent Appraiser
establishing an estate plan
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
for most favorable estate tax treatment
For Most Favorable Estate Tax Treatment
  • Cap the tax liability with an estate freeze
  • Use of family trust
  • Gifting
  • Creation of Family Limited Partnership
income tax considerations
Income Tax Considerations
  • Allocation of purchase price
  • Capital gains vs. ordinary income
  • Stock vs. asset sale
  • Basis on death
funding an effective plan
Funding an Effective Plan
  • Cash on hand
  • Borrow
  • Sale of assets
  • Insurance
buy sell agreement
Buy-Sell Agreement
  • Cross purchase vs. redemption
  • Funding source
  • Legal issues
death or disability
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
funding an effective plan17
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
funding an effective plan18
Funding an Effective Plan
  • Group Disability
  • Supplemental Disability
  • Business Overhead Expense
  • Disability Buy-Out
funding an effective plan19
Funding an Effective Plan
  • Life insurance provides family financial independence and business capital to continue
  • Key man insurance