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

Corporate and Securities Law Attorney Focusing on Helping Businesses Obtain Liquidity and Transition to New Ownership Through Exit and Succession Planning as well as Comply with the Corporate Transparency Compliance Act

Seven Keys to Successful Succession

By

Rick Randel Successful Succession
 
An internal succession or ownership transition plan is a great option for many businesses. Rather than selling to an outside buyer, an internal succession plan involves the founders or current owners (sometimes referred to as G1 for Generation One), selling their shares to their senior associates or key employees (G2 for Generation Two). Business that are ideal candidates for internal plans include professional service firms and financial advisory firms. 
 
For those of you considering an internal succession or advising clients considering one, take a look at this list of seven key factors that I’ve learned over the years make an internal succession more likely to succeed (this is not really a “how to” article but rather the key ingredients for a successful transition):
 
  1. G1 and G2 have many personality traits in common (you could even take an assessment tool like Meyers-Briggs or DISC to see if you are aligned).
  2. A reasonable difference in ages but not too wide of a gap (10-20 years is ideal; it’s important for G2 to be experienced and know how to run a business, but still young enough that they want to keep working for another 10-20 years).
  3. The people in G2 each have their own book of business.
  4. G1 and G2 have shared visions/values and common goals for the firm (if some parties want to maximize profits but other parties want to balance profits with lifestyle goals or treatment of employees, that may not be a good mix).
  5. The flexibility and willingness to adapt or change the terms of the plan based on changes in circumstances.
  6. This one is huge: trust.  It’s essential for the parties to trust each other, so neither side gets suspicious that the other is trying to take advantage of the other.
  7. Most important of all: start the process early! Especially if you don’t even have a G2 yet. G1 needs to hire a G2 and groom them to take over the business before G1 can get bought out. 
G1 can rest assured that planning the transaction is not the same thing as exiting, and G1 can maintain control until they are ready to pull the trigger.  G2 can buy in gradually in tranches and/or pay part of the purchase price up front and the remainder over time, to lessen the cost and spread out the payments.  I talk about some of these strategies in previous posts, including Ownership Transition Plans and Top Ten Tips.  
 
I hope you’ve enjoyed this list of Seven Keys to Successful Succession.  Please feel free to share with others or reach out to me if you have any questions or comments. Thanks!
 
Rick
 

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.

Write your own Business Continuity Plan

By

Business Continuity Plan Rick Randel San Francisco Bay Area Business LawyerYou may remember my recent post about the Hit by a Bus Plan. The Hit by a Bus Plan helps owners stop worrying whether their business will continue and their family will be protected if something should suddenly take them out of the picture.

Well, business owners have to plan for other contingencies as well, such as earthquakes, fires, power outages, or worse. That’s not what I do, but I just came across an excellent tool developed by Ready.gov to help businesses of all sizes develop plans for such contingencies. I thought it might be helpful for my readers and their clients who haven’t yet developed a contingency plan. Here is a link to the tool:

https://www.ready.gov/business-continuity-planning-suite

You will be prompted to download and extract a zip file which contains a suite of tools including some business continuity planning videos, a business continuity plan generator, and a business continuity plan training exercise to test your plan. I started the process myself and it seems pretty painless. I hope you find this tool makes it easy to write your own contingency plan and worry less about what will happen to your business in the event of a fire, earthquake, or other disaster.

And if you want to worry less about what will happen to your business and family if you get “hit by a bus”, click here to contact me about developing your own Hit by a Bus Plan.

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.

The “Hit by a Bus Plan”

By

Business Owner Dies Incapacitated Exit and Succession Strategies Hit By A Bus Plan

What happens when the owner of a business suddenly dies or is incapacitated?  Businesses without a plan can quickly go down the tubes.  Employees leave, customers desert, and before you know it, the company is forced to shut down.  The owner’s family gets no value from the business he or she spent so much time and effort building.

Companies with two or more owners can at least partially address this scenario through the buy-sell agreement.  But what about companies with only one owner?  Sole owner businesses need the equivalent of a buy-sell agreement.  I call it the Hit by a Bus Plan.  The Hit by a Bus Plan includes the following elements:

  • Interim operations plan
    • Who runs the business while the owner is out? Who signs checks and pays bills?  Who contacts customers and assures them their needs will be met?  Who assures the employees that their jobs are safe?  Having a plan that addresses these issues avoids chaos should anything happen.
  • Transition instructions for the owner’s spouse
    • This is a document the owner gives to his or her spouse, to be used in an emergency. It lists the key advisors the spouse can rely on (e.g. banker, accountant, lawyer), the key employees who can be trusted, the employees and/or customers who are flight risks, and potential buyers of the company.
  • Salary continuation plan
    • This designates a beneficiary (typically the owner’s spouse) to receive the owner’s salary for a certain period after his or her death or disability. Having this plan in place allows the spouse to continue paying the bills until the ownership transition is complete.
  • Ownership transition strategy
    • This sets forth who will take over ownership when the owner is gone. Will the spouse/estate continue to own the business indefinitely?  Will the spouse try to sell the business to a third party?  Or will the spouse sell the business to one or more key employees?  In the last case, an employee buy-sell agreement is prepared, obligating the employee(s) to buy the shares from the spouse.
  • Employee retention strategy
    • Key employees can be incentivized to stay through a combination of employment agreements (ensuring employment for a certain period), stay bonuses (payable only if they remain with the company for a certain period), and equity. The equity portion will tie into the ownership transition strategy (see above) if the key employees are to be the new owners.

It may seem like a lot, but the Hit by a Bus Plan can be put together with less time and effort than you may think.  Business owners owe it to their families, their employees, and their customers to have a plan in place.  Trusted advisors, consultants, and others who advise sole owner businesses should talk to their clients about the importance of planning for such contingencies.  Feel free to contact Randel Law, Inc., if you have any questions or would like some guidance on developing a Hit by a Bus Plan.

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.

Six Benefits of Succession Planning

By

Benefits of Succession Planning Rick Randel San Francisco Bay Area Attorney
Business owners without a succession plan are going to retire on Uncle Sam’s terms, or their family members’ or key employees’ terms, not their own terms.  To paraphrase the famous basketball coach, John Wooden:

 

“Failing to plan is planning to fail.”

 

Business succession planning presents an opportunity for business owners to:
  • Smoothly divest themselves of their business
  • Obtain liquidity to fund retirement or other expenses
  • Provide for the needs of their family after they are gone
  • Ensure continuity of the business they started
  • Reduce the tax burden on themselves and their family; and
  • Exit on their terms, not the IRS’s or their heirs or competitors

Remember that planning your exit is not exiting.  Don’t let your fear of not being in control stop you from acting now to plan your exit.  You will still have many years in your business before you hand over the reins (see previous post on this). And if you think about it, planning your exit is the ultimate way of controlling your company: you decide how you leave and what happens after you leave. Nothing is left to chance.

Give me a call if you would like to discuss your business succession plan.

Rick Randel

 

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.

 

Randel Law, Inc.
111 Deerwood Road, Suite 200
San Ramon, CA 94583
ph: (925) 855-3215
fax: (925) 855-3216

rick@randellaw.com