When is the best time to begin thinking about succession planning?
"The best time was the day before you started the business. The second best time is right now," said Anthony C. Acampora, Partner-in-Charge, Silverman Acampora LLP and Moderator of the panel discussion Succession Planning - Key to the Future Success of Your Organization, held at M3 Technology in Bellport, New York on September 21, 2016.
Joining Acampora on the panel were:
Planning is Difficult but Essential
"31% of businesses do not have a succession plan in place," said Steve Ramerini. This leaves the business vulnerable should the leader of the company suddenly disappear. He noted that the first step is for the leader of the business to consider what he or she wants to do once they have given up control of the business. Consider your desired lifestyle, cash needs, travel, and charitable giving among other factors.
Berdon's Saul Brenner noted that the decision to sell or prepare a member of the younger generation to move up is difficult but essential. "If you don't have a younger family member with a fire in the belly to take over, you may need to consider a sale," he said. Brenner also pointed out a Boston Consulting Group study finding that 40% of businesses had not adequately prepared for succession in the past decade.
Failure to make that decision can have painful consequences. Russell Stern recalled a situation where more than 10 years of fighting and litigation among siblings and parents could have been avoided had a family business addressed the issues before the father passed away. He raised another consideration - is the business itself even sellable? If the founder/owner is the whole business, what would there be to sell when he/she is gone? Stern recalled another situation where the real estate was worth far more than the business itself.
Acampora stressed the importance of having an up-to-date operational plan, using a number of real world examples that clearly illustrated how plans can quickly become outdated. Ramerini asked. "How long can your business operate without you?" He said that if the business cannot operate for at least 6 months with others in charge, there may be little to sell of value when you are gone.
To circumvent that event, "Get people who can help you help yourself." said Brenner. He pointed out that you can still be the decision maker, but it is crucial to have talented support. That may include bringing in nonfamily members to shore up areas where family members may fall short.
Proposed Valuation Regulation May Require Immediate Action
The panel also raised the topic of proposed regulations issued by the Treasury Department and IRS to significantly limit the ability to use valuation discounts in the context of transferring interests in family-owned entities to family members. These regulations would have a particularly significant impact in the case of real estate business owners.
While these proposals are not final and may even trigger litigations, Stern said that they will likely cause a jump in lifetime gifting. Brenner cautioned that with the year drawing to a close, prudent planners should consider accelerating plans for wealth transfers or adjusting their planning to factor in these potential changes.
"This is certainly a wake-up call" said Ramerini.
Acampora concluded with: "Every business has a unique set of family, leadership, operational, and industry-specific issues. There is no set formula for business or planning. But there is one universal truth that applies to every business. That is, the day before you start your business is the same day you should start thinking about your exit."