Exit and Succession Strategies Archives - Randel Law, Inc., Your Business and Succession Planning Lawyer as well as Corporate Transparency Compliance

Exit Planning is a Misnomer

May 21, 2025 By Rick Randel

Rick Randel Exit and Succession Planning

I suspect the main reason many business owners put off exit planning is they don’t like the word “exit”. For many, their business isn’t just a job; it’s a huge part of their identity and their reason for getting out of bed every morning. So the word “exit” conjures up images of being put out to pasture, or facing a future with nothing to do but lie around the house or play golf every day.

But “exit planning” is really a misnomer. It’s not about leaving, it’s about building a stronger, more successful, transferable business. It’s about ensuring a smooth transition and the continuity of the enterprise you’ve worked so hard to build. And here’s the best part: engaging in this kind of planning almost always increases your company’s revenue and profits.

The Benefits of a Success(ion) Mindset
When you reframe exit planning as success(ion) planning, you unlock immediate advantages that benefit you and your business long before any actual exit. This proactive approach focuses on:

Building a More Valuable Business: Success(ion) planning identifies and strengthens your business’s value drivers. This includes hiring, training, and appropriately compensating key team members who can take on more responsibility, making your business less dependent on your constant oversight and more attractive to potential investors or buyers down the line.
Achieving Greater Flexibility and Work-Life Balance: Want to slow down, take a step back, and let others run the day-to-day operations and work the long hours? Success(ion) planning allows you to do just that, giving you more time for personal pursuits while still reaping the rewards of ownership. You can reduce your hours, take extended vacations, or simply enjoy less day-to-day stress without exiting the business.
Generating Liquidity When You Need It: Life happens. Whether you need to pay for college tuition, buy a vacation home, cover a parent’s skilled nursing care, or fund a trip around the world, success(ion) planning can provide options to fund those endeavors. This might involve selling a minority stake to a pre-designated senior manager or group of managers, giving you access to capital without giving up control or exiting the business.
Reducing Taxes: Bringing in your tax advisors as part of the success(ion) planning process can greatly reduce income and/or estate taxes, ensuring that more of the wealth you’ve built stays in your pocket to fund your retirement, or passes more efficiently to your loved ones, rather than going to Uncle Sam or the FTB.

Planning for Future Scenarios

While many benefits of success(ion) planning are realized while you’re still actively involved, it also prepares for those scenarios where you might, either gradually or suddenly, step away from the business. A comprehensive plan ensures continuity and minimizes disruption, no matter how or when that transition occurs:

Your Planned Retirement: For owners who do eventually decide to retire, having a well-crafted plan in place is invaluable. Think of how many business owners wait until after they’re burnt out, only to realize they now have to work another 2-5 years just to get their business ready for transition. Success(ion) planning prevents this stress, allowing you to transition whenever you decide to. You will have already groomed the next generation of owners who can buy you out and take over the business when you retire.
Leaving on Your Own Terms (or Not at All): Perhaps you decide to continue working indefinitely, even into old age. With a success(ion) plan, you’ll have a clear framework and a strong team in place to ensure that clients continue to be cared for, employees maintain their jobs, and your legacy remains intact.
The Unexpected Departure: We’ve all heard the tragic stories: owners who suddenly drop dead or suffer an incapacitating illness, leaving their spouse or unprepared employees to try to keep the business afloat. Those who have engaged in success(ion) planning have a contingency plan in place. This foresight ensures the business can continue smoothly, alleviating immense pressure on grieving family members, safeguarding client relationships, and protecting employee livelihoods. Even if you feel like it’s too much trouble, don’t do it for yourself, do it for them.

Plan for Success, Not Just an Exit

So maybe it’s time we stop calling it “exit planning” and start calling it “success(ion) planning”. After all, “success(ion)” has the word “success” built right into it, and that’s precisely what this type of planning ensures: the ongoing success of your business, your legacy, and your future.

This post is not intended and should not be relied upon as legal or tax advice pertaining to any specific matter. You are encouraged to seek competent legal and tax counsel before proceeding with any transaction involving any of the matters discussed above.

Succession Plans for Financial Advisers

September 7, 2023 By Rick Randel

If you’re a business owner, you’ve probably received umpteen email blasts telling you that you should have a business continuity and/or succession plan. Most businesses are not legally required to have a plan. But some are, including many financial advisers. This post lays out which financial advisers are required to have a business continuity and/or succession plan, and what those plans are supposed to include.

But first, let’s clarify the difference between continuity plans and succession plans. Although the words tend to be used interchangeably, business continuity (sometimes called contingency) plans primarily address business disruptions such as natural disasters, power outages, cyberattacks, and things of that nature.

Succession plans are addressed more toward changes at the individual level, such as death, disability and retirement. These are sometimes referred to as ownership transition plans, or what I referred to in a previous post as a “hit by a bus plan”.

Broker-Dealers

Because broker-dealers are associated with firms that have custody of the clients’ funds and don’t have the fiduciary duties of investment advisers, FINRA is more concerned with continuity plans (business disruptions) than succession plans. FINRA Rule 4370 specifically requires broker-dealers to have a “Business Continuity Plan”. The elements of the plan must at a minimum address:

(1) data back-up and recovery (hard copy and electronic);

(2) all mission critical systems;

(3) financial and operational assessments;

(4) alternate communications between customers and the member;

(5) alternate communications between the member and its employees;

(6) alternate physical location of employees;

(7) critical business constituent, bank, and counter-party impact;

(8) regulatory reporting;

(9) communications with regulators; and

(10) how the member will assure customers’ prompt access to their funds and securities in the event that the member determines that it is unable to continue its business.

The full text of FINRA Rule 4370 is available here. Fortunately, FINRA even goes so far as to provide you with a sample continuity plan template, which you can download here. Of course their sample is highly generic and needs and needs to be customized to match your business.

As far as succession planning (death, disability, retirement), FINRA doesn’t affirmatively require a plan. However, FINRA Notice 22-23 encourages the use of succession plans to address these possible events. It doesn’t contain a template, but there’s a good bullet point list of things to consider.

Investment Advisers

Unlike FINRA and broker-dealers, the SEC does not specifically require SEC registered RIAs to adopt business continuity plans. However, the SEC has stated its opinion that business continuity and transition plans are mandated by RIAs’ fiduciary duties and existing requirements to adopt “written policies and procedures” to prevent violations of those duties. But because such plans are not specifically required in any SEC rule, the SEC has proposed new Rule 206‑4(4) that would affirmatively require SEC-registered adviser firms to adopt business continuity and transition (e.g. succession) plans. Although the new rule has not been formally adopted, it would be best practice for RIAs to adopt such plans now, to fulfill their fiduciary obligations to their clients and make sure they are in compliance with proposed Rule 206-4(4) when it goes into effect.

New Rule 206(4)(4) is proposed in SEC Release IA-4439, which is available here. In addition to requiring a business continuity plan to safeguard against business disruptions similar to FINRA Rule 4370, the SEC goes a step further and requires the plan to include policies and procedures concerning “business transition in the event the investment adviser is unable to continue providing investment advisory services to clients” (i.e. a succession plan).

The SEC defines a business continuity and transition plan to mean “policies and procedures reasonably designed to address operational and other risks related to a significant disruption in the investment adviser’s operations, including policies and procedures concerning: (i) business continuity after a significant business disruption; and (ii) business transition in the event the investment adviser is unable to continue providing investment advisory services to clients. The release makes it clear that business transition includes events such as death, disability and retirement.

According to the SEC, business continuity and transition plans must address the following issues:

(1) maintenance of critical operations and systems, and the protection, backup, and recovery of data, including client records;

(2) pre-arranged alternate physical location(s) of the adviser’s office(s) and/or employees;

(3) communications with clients, employees, service providers, and regulators;

(4) identification and assessment of third-party services critical to the operation of the adviser; and

(5) plan of transition that accounts for the possible winding down of the investment adviser’s business or the transition of the investment adviser’s business to others in the event the investment adviser is unable to continue providing investment advisory services, that includes the following:

(a) policies and procedures intended to safeguard, transfer, and/or distribute client assets during transition;

(b) policies and procedures facilitating the prompt generation of any client-specific information necessary to transition each client account;

(c) information regarding the corporate governance structure of the adviser;

(d) identification of any material financial resources available to the adviser; and

(e) an assessment of the applicable law and contractual obligations governing the adviser and its clients, including pooled investment vehicles, implicated by the adviser’s transition.

Unfortunately, the SEC doesn’t provide a template like FINRA does, but the FINRA template can be a good starting point for RIAs, at least to address the business continuity components required by the SEC (potential business disruptions). You will have to develop the transition/succession part of it yourself. FINRA Notice 22-23 (mentioned above) and the NASAA model rule (see next paragraph) lay out some excellent guidance for fleshing out such plans, and a good attorney can help as well.

Although state-registered IAs won’t be subject to the new SEC rule when it goes final, you should be aware that the North American Securities Administrator Association has recommended that state securities law agencies require state-registered IAs to “establish, maintain, and enforce written policies and procedures relating to a business continuity and succession plan” (this appears in the NASAA Model Rule for Investment Adviser Written Policies and Procedures adopted in 2020). Although the State of California has not officially required state-registered IAs to adopt such plans, IAs are required to attest in their applications that they have such a plan in place. Even if you are SEC registered, the NASAA Model Rule contains excellent information to guide you in developing your plan to comply with the SEC’s requirements.

Feel free to contact me if you have any questions or would like my assistance in developing a customized plan for your firm.

Top Ten Tips For Business Succession Planning

June 1, 2019 By Rick Randel

Start planning early (at least 2-3 years before exit if possible, if not longer).
Get a valuation (this helps us determine whether the business will provide enough value to fund your retirement, what kind of tax hit you are looking at, whether there are estate tax issues, and what level of planning and associated cost are warranted).
See a financial advisor (this helps you determine how much you need to retire among other things).
Train your successor: build the next generation of ownership who can run the company after you leave (this also creates potential buyers).
Build a transferable business, one that can run without you (this runs counter to a lot of owners’ need for control, but you’re just going to have to let go of that).
Be clear about your objectives, including what you’re going to do when you retire. Do you want the most money as soon as possible or are other factors more important e.g. your legacy, the continuity of the firm, continuing its mission, or what happens to your employees and clients? Many owners get their sense of identity from their business and lose that when they retire. Be sure you know who you are going to be when you retire.
Have a Hit by a Bus Plan in case something happens to you before the full exit/succession plan unfolds.
Be flexible/adaptable. Exit/succession plans rarely unfold exactly how they are written at the beginning. Stuff happens. You and your buyer(s) need to be okay with adapting the plan to deal with changed circumstances.
Find buyer(s) with compatible personalities and communication styles, trust, shared vision and compatible goals.
Build a good adviser team. Make sure one of them is clearly designated as the quarterback with overall responsibility to coordinate the process. Let them communicate directly w/each other; don’t keep each one in his or her own silo and only communicate with them yourself.

I hope you enjoyed reading the Top Ten Tips. Feel free to contact me if you have any questions.

Rick Randel Business and Succession Planning San Francisco Bay Area, San Ramon, Walnut Creek

This article is not intended and should not be relied upon as legal or tax advice pertaining to any specific matter. You are encouraged to seek competent legal and tax counsel before proceeding with any transaction involving any of the matters discussed above.

Succession Plan Roadmap

February 26, 2019 By Rick Randel

Welcome to the latest issue of the Randel Law Blog. In a previous issue we talked about Six Benefits of Succession Planning. In spite of the benefits, many business owners are hesitant to start the planning process, partly because they’re unsure of what it’s going to involve.

That’s why I’ve developed an outline of the succession planning process to help owners know what to expect. I call it the Succession Plan Roadmap (see below). Over the years I have fine-tuned this process into a system using templates that make the process simpler and easier for my clients.

Of course every owner has unique objectives and circumstances, so no two plans ever unfold exactly the same way. But this should give you a good idea of how the typical process works. I’m always happy to go over the Roadmap with a business owner as a courtesy, just for educational purposes, even if they’re not ready to start the process right away. So if you know any business owners who may find this of value, feel free to forward this to them.

I hope you enjoy the Roadmap. I look forward to your questions and comments. Thanks for your continued support of my firm.

Rick Randel

Succession Plan Roadmap

Step 1: Introductory meeting

Step 2: Data Collection

⇒Determine owner objectives:

»Liquidity?

»Retirement?

»Continuity of Firm?

»Leadership Succession?

»Provide for Family?

»Reduce Taxes?

»Time frame

⇒Gather information relevant to plan (owner fills out Client Questionnaire)

⇒Contact and request input from other advisers, e.g.:

»Accountant

»Estate Planning Attorney

»Financial Advisor (e.g.how much does the owner need to retire?)

»M&A Advisor/Business Broker

»Insurance Advisor

»Other (e.g., business consultant, succession planner, etc.)

⇒Obtain valuation of business

Step 3: Review and analyze information collected

⇒Prepare Client Data Sheet

Step 4: Consider potential vehicle(s) for plan, e.g.:

⇒Internal family transition

»Gift or sale?

»Estate planning trusts?

⇒Sale to key employees/management team?

⇒Sale to outside buyer?

⇒Stock Option Plan?

⇒Private Equity recap?

⇒Other?

Step 5: Strategic planning meeting/conference call with client and adviser team

⇒Discuss potential tax reduction strategies

⇒Discuss potential estate planning strategies

⇒Discuss potential funding strategies

⇒Decide on ideal vehicle(s) for succession

⇒Agree on action steps and timetable

Step 6: Prepare initial outline of plan and circulate among client and adviser team

⇒Owner objectives

⇒Vehicle(s) chosen

⇒Action items

⇒Documents needed, e.g.

»Stock Purchase Agreement(s)

»Promissory note(s)

»Pledge agreement(s)

»Trust agreement

»Buy-sell agreement

»Gift letters

»New stock certificates

⇒Timetable

Step 7: Meeting/conference call with client and adviser team

⇒Go over draft plan, revise per input, discuss timetable, etc.

Step 8: Revise and finalize plan

Step 9: Prepare documents to implement plan and circulate for comment

Step 8: Revise documents per feedback

Step 9: Finalize and sign documents

⇒Take other actions to implement plan including share transfers, transmittal of funds, update stock ledger, etc.

Step 10: Calendar follow-up items

⇒Reminders to conduct subsequent rounds/stages of the plan, update valuation/insurance coverage, etc.

The Secret to Protecting Your Intellectual Property

August 28, 2018 By Rick Randel

This is a true story. Only the names have been changed. My client (let’s call her Karina) had negotiated a deal with the owner of another company (lets call him Phil) to acquire Phil’s company. During due diligence we discovered that Phil’s company didn’t own the code to its own website. Considering the business was an online store, the code to the website (a form of intellectual property or IP) was a vital assets.

When we pointed this out to Phil, his reaction was “That’s crazy. Of course we own it. We paid for it.” But he had neglected to put a “work for hire” clause in the contract with the developer. So he didn’t own the code. This nearly killed the deal. There was no way we were going to complete the purchase without getting ownership of the core IP. The deal was put on hold for a month while Phil negotiated with the developer to acquire ownership of the code. Lord knows how much more he had to pay the guy. And he almost lost the deal. He was lucky Karina didn’t walk.

The same thing would’ve happened if Karina were an angel or VC about to invest in the company. One of the main things they do is confirm the company owns the IP.

The lesson is, when you or your client hire service providers to create any intellectual property (basically any work product or deliverable), make sure the contract states that the company owns any IP the person creates. Of course the contract should also require them to keep company information confidential. This should be part of the standard onboarding process for all employees and contractors.

That way when the company receives a due diligence list from a potential buyer or investor, it’s an easy matter to just send them copies of the contracts all the service providers signed, so the buyer/investor can see they own their IP (and that they are well organized and professional).

Feel free to contact me if you have any questions.