Financial Education

Four Valuable Steps for Creating a Strong Business Succession Plan

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January 5th, 2019

Succession Hero Succession Hero

If you own a business, a business succession plan is essential to securing your business against planned or unplanned events, such as retirement or illness. Planning for business succession should be as much a part of an owner's business plan as any other aspect of business operations. And yet it's estimated that more than 70 percent of private businesses have not done any exit planning! Let's look at four common steps toward implementing a comprehensive business succession plan.

1. Gather Information

The first step includes consulting with your advisor to share your plans and goals. This will help your advisor develop an exit planning team—one focused on helping you meet your personal, business, financial, family and estate goals. The team will also help you execute your plan.

The particular circumstances of the owner, the family and the business need to be considered while developing a succession plan. These include:

  • Controlling vs. minority interests and the impact on value
  • The necessity of retaining control by the transferring owner or family
  • Management responsibilities for participating family members vs. economic enjoyment for nonparticipating family members
  • The need for income for the existing owner
  • The need to reduce the taxable estate of the existing owner or reduce the impact of income taxes as a result of the transaction


2. Assess Your Business

Step two includes a valuation of the business in the context of a preferred exit option. This includes taking an analysis and finding ways to maximize value, tax strategies and tax impact. A price and structure analysis would also be needed to see how the exit plan would affect net proceeds for the owner. This step would also include a personal financial plan and analysis.

3. Develop a Succession Plan

The third step involves a number of considerations, including exit options relevant to the owner's personal and family goals and objectives,the value and marketability of the business based on current facts and owner's goals, tax and legal options for a transaction, and the development of a specific action plan detailing who needs to do what and when.

4. Implement Your Plan

The final step includes implementation of the plan and proceeding with the appropriate business exit option. This means attending to pre-transaction tax and legal due diligence.

Note that the business succession plan can be done concurrently with the development of an appropriate estate and wealth management plan. Analysis of trust options that are advantageous under the particular circumstances can be included in this plan. As always, consulting with your attorney and tax advisor is your wisest choice.

Bank of Hawaii does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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