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Succession Planning: Enjoying the Success of a Life's Work

I believe that one of the most important responsibilities that comes with owning a business is planning for its evolution. In many cases, this also means planning for the transition of its ownership and management.


Understanding the owner’s perspective on owning their business is critical to creating a successful transition plan. In all cases, this effort should “begin with the end in mind.”

The Six Step Process of Exit Planning

1. Consider Your Values

In my own case, after owning and managing JMGreen CPA Group for many years, I looked into the mirror and realized what I value and what I wanted.

  • I value my clients and wanted to assure that they would continue to get the best service now and in the future.
  • I value my staff, who have enabled the firm to provide service to our clients.
  • I was ready for a new challenge within the profession.

I searched for and found a firm that met all these criteria. We merged in 2014.

2. Establish Exit Goals

When business succession planning, consider the following:

  • How long do you want to work?
  • What is next for you?
  • What commitments have been made?

3. Determine Financial and Mental Readiness

 Financial Readiness 

Briefly, financial readiness exists if the owner can sell the business for an after-tax sum, and then together with their outside assets to generate enough investment income to replace their salary, fringes, and other perks. If there is a “value gap,” you’ll need a plan to close it first.

Mental Readiness is a Little More Complicated 

Many entrepreneurs see their business as the provider of their lifestyle and the source of their ego stimulation, rather than a financial investment, and don’t have something to “retire to.” On the other hand, a motivator in favor of making a business transition may be their reluctance to make a large investment to fund growth opportunities because they don’t have an appetite for increased financial risk.


4. Consider Your Exit Options 

There are 6 primary exit options:

  1. Sale to a financial buyer: A financial buyer will operate the business and recover their investment or pay it off from the after-tax cash flow of the business. This type of buyer usually does not create synergies.

  2. Sale to a strategic buyer: A strategic buyer, usually a larger competitor, can most easily pay a premium for the business because it has the capacity to replace the seller’s infrastructure at a much lower cost, and may also possess other purchasing advantages.

  3. Private equity group: The buyers usually seek to combine like businesses, have the capital to fund needed expansion, and plan for a future sale in a few years. It’s common for the seller to retain up to 20% of their original equity, to be sold at the future sale at a higher strategic value, while keeping their job with the buyer until that sale.

  4. Employee stock ownership plan (ESOP): If the business is large enough, has existing capable management, is profitable, and has a large payroll, there are special tax advantages to the employee group buyers and sellers, which may make this a viable option.

  5. Management buyout: The management team is the buyer. Usually, the seller must take back the buyer’s note if the sale does not qualify for the SBA 7(a) plan.

Gifting program, usually to family members: The chart below illustrates the seller’s likely exit options based on readiness.

High Financial Readiness Management Buyout, Gift, or ESOP Gift, Charity, ESOP, Sell
Low Financial Readiness Private Equity, or "Stay and Grow"  Sell at Best Offer
  Low Mental Readiness High Mental Readiness


5. Determine the Range of Values of the Business

  • Understand that the value of the business will vary by the type of buyer
  • Learn the lingo (i.e., fair market value vs. market value and when each applies)

6. Build Your Team and Start the Process 

The team of advisors includes an attorney familiar with business transactions, an investment banker, a personal financial advisor, a valuation expert, an M&A advisor, a CPA, and an ESOP advisor.

Don’t underestimate the time and effort involved in business succession planning and managing the succession and/or sale of the businesses while managing it.

Information in this article is based off content from Jonathan M. Green's article in Cleveland Jewish News, October 2019.


Want to learn more? Download our Succession Planning for Family Business guide today 

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