This article are provided for information purposes only, and are not intended as legal advice.


Succession – easy or hard to plan?

June 16th, 2010

Eventually all of us get too old too work.  When is it time to retire and let the business change hands, either to a child, family member of third party buyer of a business.  Can you stay too long and if so, will this reduce the value of your business?

 

Some people refuse to consider retirement.  Many years ago, I met an interest person who owned his own business. He was 79 years old and had no succession plan.  His daughter had passed away two years before and that got him to thinking about retiring.  His accountant was older than him and the accountant was retiring and this was the motivating item regarding retirement and not the death of his daughter.  He had no hobbies, no interests, just liked to putter around the business.  His business was extremely complicated in that he was trying to minimize taxes and had assets were located in many different businesses, some owned individually and leased to the business.  No one other than the accountant who was about to retire or the owner understood how the companies were put together.  If he died and the accountant was not available, it would take some time to understand the complex ownership.  Since he was trying to minimize tax and make the financial statements hard to read because the assets were in so many different companies, it would be difficult to sell. Someone would have to spend time figuring out what was a true sale vs inter company sales and who owned what the assets.  Once this was calculated, then prepared consolidated financial statements reflecting the business for sale.

 

This all takes time and money.  What happens to the business in the meantime?  Can it function?  Can it continue to pay the employees – i.e. are there third party employees who have signing authority etc.  Since it was so complicated from a corporate accounting point of view and since the company was very economically dependent on one large company who generated more than 50% of the sales, a sale without the owner may be difficult to do and also an investor would not want to pay as much for the business if the owner was not alive.

 

In this case, staying too long probably would cost the owner a lot of money.  But since he had more than enough money for him to live on, had not heirs willing to go into the business, he was not a motivated person to do family planning and maximize the value of his business.

 

Will you be caught in this type of planning or lack thereof?


Filed under: Succession — Gary Landa @ 5:44 pm


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