My Family's Brush with Succession Planning
Yudkin, Robert, The National Public Accountant
Although he grew up around the business started by his grandfather in 1908, my teenage father was forced to grow up in the business when his own father unexpectedly passed away. His entry into, and exit from, that business illustrate the importance of succession planning and the ability to adapt.
The topic of succession planning evokes dread and emotion for many business owners. Some simply ignore the subject, but those able to face reality take action to ensure they will control not just their destiny, but also their company's future. My father's early lesson served him well down the road.
Fast forward 30 years. The business had grown and prospered under my father's direction. I was coming up on my senior year in college and looking forward to graduation. Although my father and I never discussed life after college, both of us assumed I would come into the business. One day during the summer before my senior year, Dad called to tell me that someone had made an unsolicited offer for the business. We talked and he assured me that he would keep the business if I wanted it; otherwise, he would sell it.
My decision--probably one of the best ones in my life--was to sell, and I based it on three factors.
First, accepting the offer allowed Dad to play tennis in Florida every day for the next 20 years. Second, I had no real passion for the business, despite having worked in it. Third, and perhaps most important, I recognized the difficulty in working with my father.
A Time to Sell
Dad was fortunate. He was busy growing the business and did not expect a white knight to knock on the door. According to Jay Stevenson, an attorney and CPA specializing in estate planning, that is precisely the time to sell.
"The best time to sell a business is when it is a going concern, and the key business owner/manager is healthy and still actively involved in the day-to-day operations of the business," says Stevenson, who says that my family's experience was extremely unusual. "The sale or transfer of any family-run business requires advance preparation, sometimes several years before you are really ready to put the business on the market or actually start the process of transferring it to the next generation." He emphasizes that there are different tax consequences depending on how the sale is structured.
Alan Tolmas, CPA/ABV, CVA, a business appraiser and an expert in Employee Stock Ownership Plans (ESOPs) with Hill Schwartz Spilker Keller, LLC, in Dallas, Texas, agrees. He believes that a minimum of three years is needed to develop and implement a good succession plan, although most companies need between five and seven years.
Why so long? Numerous tasks need to be accomplished, including deciding to act and following through on it, identifying the professionals to help, valuing the business, identifying the succession strategy and players, and actually implementing the plan. Tolmas shares that many business owners, "who want to get out of business, don't want to get out completely. It is 'their baby' and they don't want to let it go. Many owners have a difficult time separating because their business has been such an integral part of their life."
Tolmas shares two interesting statistics. First, according to Joseph Astrachan, Ph. …