Business & Succession Planning

A well-developed business succession plan is one of the most important factors in transitioning a family business from the older generations to a younger generation of management or selling the business to key employees or outside third parties if there are no family members in the business. Paradigm Financial Advisors provides strategies that help owners of closely held and family-owned businesses establish ways to help ensure that their business will continue to operate smoothly when they retire or die.

Approximately two-thirds (2/3) of family owned businesses fail to be passed on to the next generation. Of those that do, close to 50 percent do not survive the transition from second to third generation ownership. There are a number of reasons for this including:

  • Estate taxes which may force a sale of the business;
  • Family disharmony, lack of interest or experience;
  • The failure to groom a “successor” to operate or purchase the business; and

Unexpected disability of a key employee/owner, resulting in a forced sale to raise cash.

Business succession planning is an important part of any estate plan.  Paradigm Financial Advisors strives to help our clients secure their legacy by developing a succession plan that provides for the continued operation of businesses they have spent years building.


The owners of privately held companies face a myriad of challenges in planning for their future. In addition to the worries of retire­ment, estate planning and overall financial well-being, business owners have to deal with the eventual exit from their company. The Exit Planning Process is a systematic way to deal with all of the personal and corporate issues that must be addressed for owners to achieve their goals.

STEP 1 –Exit Objectives

Every owner must begin the Exit Planning process by defining his or her objectives. Goals are different for every owner. Some require full value in order to achieve financial independence. Others are more concerned about keeping the company in the hands of family members or employees. No matter what your goals, the Exit Planning starts here – with the Owner’s Plan and Needs Analysis.

STEP 2 – Determining Value

Often, the value of the business comprises a large portion of an owner’s assets. It is critical to understand the value of the enterprise when undertaking Exit Planning. The business owner needs to know if the current value, when converted to cash – net of taxes – will meet the Exit Objectives.

STEP 3 – Making the Business More Valuable

The idea here is to protect and grow the value of the entity. There are numerous tools that may be appropriate depending on the individual scenario. Qualified Retirement Plans, Key Employee Incentive plans, and the right Entity Structure are some examples of what must be evaluated in this step.

STEP 4 – Sale to a Third Party

When asked what they plan to do with their company, the answer often given by owners is a sale to a third party. However, most businesses are not sold to an outsider for the amount the owner desires, or on their terms. Long before a business is sold, it must be made ready for the marketplace. Tax ramifications, type of transaction, and a plan for the team of professionals charged with completing the sale must be developed.

STEP 5 – Transfer to a Family Member or Employee

Many business owners express a desire to transfer their business to an “insider” – a key employee or family member. However, this is the most challenging transfer because “insiders” typically lack the capital to buy the business outright. Learn how to successfully complete a transfer to an insider and still meet your Exit Objectives. Become educated on how to accomplish this without all the risk residing with you – the departing owner.

What happens to the Exit Plan if the owner dies or becomes disabled? What is the transition plan for the key employee group, the customers, and vendors? Can the plan handle such an event and still accomplish the objectives laid out by the owner? Create the documents that are necessary to preserve the business in the wake of a tragedy. Determine what is to be done with the business and how to make certain it will be done. Often, this is the motivation to begin the Exit Planning Process.

STEP 6 – Preserve the Legacy of the Owner’s Estate

The successful exit from a business is often the single largest financial transaction that a business owner will make. Once completed – or on track to be – it is important to integrate the owner’s estate planning with the Exit Plan. Where will your assets eventually go? Do you care about philanthropy? What are your feelings about Estate Taxes? The answers to these and other questions lead to the strategies and techniques used to ensure the legacy of the owner.

To learn more about Business & Succession Planning