Five Key Steps To A Successful Business Succession Plan

The Coach interviews Stephen Reed, CPA, at Cowan, Gunteski & Co., P.A. on the five key steps to a successful business succession plan.

Over 90% of businesses in the U.S. are family owned, but less than 30% make it to the second
generation and fewer than 12% make it to third generation. The key reason cited is: they had a
poor, or worse yet, no business succession plan. In fact, recent surveys indicate that only 30% of
business owners have a succession plan.

Whether your manufacturing or wholesale company has been in the family for years or you built it from
the ground up, it is critical that you develop a succession plan.

Just as there is a human life cycle, most business owners fail to understand that there is also a business
life cycle. It begins with the conceptual/idea stage, then the actual start-up period, next comes the growth
phase, followed by the well-established maturing years and then finally the exit or retirement phase. The
most common mistake most business owners make is that they dont plan far enough in advance for the
exit phase. Most experts agree that succession planning should begin anywhere from 10 to 15 years
before retirement. Even if you are one of those people who feel that you never will retire, a succession
plan is still needed in the event something unforeseen happens to you such as a serious illness, disability
or even death.

Now that you understand the importance of developing a plan for your distribution business, here are the
five key steps:

1. Identify whats important to you. This means deciding at least generally, how you wish to spend the
rest of your life as well as what you want to happen to your business. Consider holding a family
meeting to engage in an open and honest discussion regarding your goals and objectives. Failure
to do so may lead to unfortunate and contentious situations that could not only tear apart your
closely-held business, but your family as well.

2. Decide who is most capable of running your company. If you have more than one potential
successor, consider giving each candidate responsibility for the part of the business for which he
or she is best suited. Look beyond your heirs for the most competent successor. Sometimes key
employees may be a viable option through whats known as an Employee Stock Ownership Plan
(ESOP). If you cannot think of anyone qualified to assume control, you may be better off selling
to a third party.

3. Develop a mentoring program. Your goal is to ensure that your business will continue to run
successfully without you. Thats why it is important to spend time grooming your successor to be
sure that he or she has thorough training and quality leadership experience. You should even
consider seeking this persons input in the development of the plan. While mentoring your
successors, you should also transition your relationship with your customers and suppliers.

4. Document your succession plan. With the help of your accountant and attorney, write down every
detail of how you would like your company transitioned. Your strategy should include choosing
the right amount of insurance, maximizing valuation discounts to reduce the tax implications and
developing a buy-sell agreement. Share this document with all interested parties—especially
family members. Be sure that your succession plan is in alignment with your other estate planning
documents including wills as well as the titling of assets and insurance policies. All too often, a
succession plan cannot be implemented as intended because it conflicts with these other items.

5. Review the plan regularly. Do not file your succession document away and forget about it. Changed
circumstances—such as rapid company growth, the departure of a potential successor and even
significant changes in tax laws—are some situations that may require your original plan to be
updated and revised.

Developing a business succession plan should not be done in a vacuum. It requires communication
between your family members as well as the team of financial and legal advisors involved in the process.
When developed and implemented properly, it can help provide financial security for you and your family
in addition to future generations.

About Cowan, Gunteski & Co., P.A.

As a diversified certified public accounting firm, Cowan, Gunteski & Co., P.A. is committed to being an
active partner in its clients growth by delivering value beyond accounting, innovative solutions and
consistent exceptional service. To discuss your particular situation, contact Stephen Reed, CPA, Director
Manufacturing & Distribution Services Group at 732-676-4100 extension 4070 or by e-mail at You can also visit our Web site for more information on the services available to meet the unique needs of the manufacturing and distribution industries.

Duration : 0:10:33

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