Succession Planning



Hi, I’m Buddy Ozanne, president of Probity Advisors. One of the practice areas that our firm really excels in is helping business owners prepare and plan for their eventual exit from running the day-day operations of their firm.

Today, I am going to address three important questions, including “What is a succession plan?”, “Why do I need one?”, and “When is the right time to plan?”.

There are so many great advantages of owning a business. And speaking as a private business owner myself, I really enjoy the control, flexibility, and the personal satisfaction I get from working with my business partners and colleagues.

One of the potential drawbacks of owning a business, is that there is usually not a liquid or observable market for the business itself which may present challenges when it comes time for business owner’s to monetize their interest and ultimately exit the business.

A succession plans helps business owners develop an exit strategy in advance, allowing them to transitions the business in a way that maximizes their financial interest and emotional objectives. We generally tell business owners who may already have this insight there are generally only five ways for someone to dispose of a closely held business:

  1. A sale to outsiders
  2. Going public
  3. A sale to insiders
  4. Testimenary disposition
  5. Liquidation

Each of these have different income tax implications and for that reason it is important to know far in advance how to structure the secession plan in order to minimize the tax impact on the transaction, while maximizing the value to the business seller. If an owner is relying on the sale of their business to provide for their financial security during a retirement, then one of the first recommendations we make is to get an independent valuation completed. A valuation works in concert with a succession strategy providing a cost basis in the case of – perhaps – a gifted transfer or a defensible negotiating position in the case of a sale to an outsider.

Beyond that, the elements of a succession plan are really dependent on what the business owner is trying to accomplish. We tell clients to think about succession as a regular part of their overall strategic plan while they are still active in their enterprise. If an owner waits until they are near retirement, he or she may miss out on opportunities to teach and train a successor or to pass along their vision. By not planning, a business owner could be leaving money on the table.

A little business succession planning ahead of time can ensure the continuation and growth of a business, help retain key employees, help prepare for tax obligations, and make the ownership transfer as smooth as possible.

Interested in learning more? Book time to speak with me today.