succession planning 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.

Seven Keys to Successful Succession

June 10, 2021 By Rick Randel

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):

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).
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).
The people in G2 each have their own book of business.
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).
The flexibility and willingness to adapt or change the terms of the plan based on changes in circumstances.
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.
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.

Six Benefits of Succession Planning

September 29, 2016 By Rick Randel

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

How to Exit a Business Without Leaving

January 9, 2015 By Rick Randel

Many business people think the term “exit” means selling the business to a third party. Many other options are available. In fact, the term “exit” doesn’t necessarily mean leaving the business at all.

Only a small fraction of owners succeed in actually selling their business to a third party. Owners often think their business is worth more than what a buyer is willing to pay. Many times the business simply isn’t saleable, or cannot be sold for enough money to fund the owner’s retirement. The books may be a mess; or the business may be too dependent on the owner’s involvement. If the owner begins the process early enough, these issues can be addressed and the business can eventually be sold. In other cases, the owner can’t wait that long and needs cash right away. This scenario is a potential candidate for an Employee Stock Ownership Plan (ESOP), a management buy-out, or a private equity group recapitalization (PEG recap).

GRADUAL OR PARTIAL EXITS
Gradual or partial exits are excellent options for owners who want to unlock some of the equity in their business, but want to continue running the business for an extended period of time. An owner who isn’t ready to retire may still be driven to grow the business she founded. But she may need cash to fund a significant expense, such as kids in college, caring for aging parents, etc. Or perhaps additional capital is needed to diversify or expand the business. These situations are potential candidates for a PEG recap or a leveraged ESOP.

Change the above facts slightly so the owner doesn’t need to raise cash now. But she realizes she will be leaving the business some day, and wants to plan ahead and do it on her own terms. She wants her eventual exit to be as tax-advantageous as possible, and/or wants to see her senior management team take over the business when she leaves. These are ideal scenarios for an ESOP or ownership transition plan, or even a gifting/estate planning solution.

PRESERVING THE MISSION
Perhaps the owner is ready to retire, but doesn’t want to hand his “baby” over to an external buyer, who may not preserve the owner’s mission or values. He may be concerned the buyer will lay off some of his valued employees, or simply not treat them or his customers the way he thinks is best. If the owner has valued senior employees who have expressed an interest in taking over the business when he retires, this is an ideal opportunity for a management buy-out or ownership transition plan.

In other cases, an owner may want to keep the business in the family. One or more of his children may be involved in the business and willing and able to take over. A sale to a third party is obviously inconsistent with that goal. However, employing gifting and estate planning techniques will help achieve the owner’s objectives.

Business owners who fit any of the above scenarios have many options other than selling their business. They should seek the counsel of a qualified exit and succession planner to work with their business attorney, CPA, and other advisors, depending on the options being considered. The process requires bringing in advisors at an early stage to conceive and execute a plan, which usually occurs over a period of several years. Owners with enough foresight to start this process early on will see that the term “exit” doesn’t necessarily mean selling their business to a third party, and in some cases, doesn’t mean leaving the business at all.