Why Every Tax Business Owner Needs a Succession Plan. Now.


You’re not going to run your tax business until the day you die (unless of course you die unexpectedly), which is why it is essential for you to have “key man” life insurance. At some point in life, it will be time to retire. You may already have your retirement plan mapped out financially, but do you have a succession plan? Who will take over your practice or your clients? What if something happens to you before retirement? What will happen to your business then?

You need to be smart about your exit. If you have a plan put in place early on, your retirement will be much smoother.

A good business exit strategy or succession plan doesn’t just mean you pick a person and hand them the keys come retirement; it means having a plan for training and transitioning that person and also for unexpected things like financial hardship, injury, disability and even death.

Here are the main items you need to plan for when developing a fully thought out succession plan.


Make sure your employees are taken care of

If you have employees, your retirement or exit is going to affect them. You want to make sure that they are taken care of and that benefits are in place in the event something happens to you. Two things you need to set-up for yourself and for your employees are:

  1. A 401K retirement plan
  2. Disability and Life Insurance


Hire with the long-term future in mind

Speaking of employees, who you hire from now until the end of your tenure is crucial in terms of succession planning. If you are handing your business over to a family member, you’ll want to ensure that you have people in management positions that can support them during the transition. If you aren’t planning on handing the business over to a family member, then long-term and trust worthy employees can make great successors.


Decide on an ownership structure

There are a lot of different options in terms of ownership structure. It depends on what your situation is. You could be handing the business over to a family member or only leaving a portion of it to your family. You also may have a co-owner that you can turn the business over to or one or more employees that are equipped with the management and industry skills to succeed you. There’s also an option to set-up an employee stock ownership plan (ESOP) and buyout.

You should carefully consider each one of your options and then make a decision as to which one best suits your business. Obtaining professional help in making this important decision is advisable.


Put a training plan in place

Replacing yourself as the founder/CEO of the business you’ve built from the ground up is not going to be an easy task. This is why hiring the right people is so important. You’ll want to start grooming a few people as successors or management. Delegating responsibilities to key employees will be a key to your succession or to creating value if your exit strategy is to sell your business. Your goal should be to make yourself dispensable.

What’s important is not just mentorship but that you have a plan laid out for who you will train, what they need to know and the timeframe they need to learn it in.

A training plan should include the following things:

  • An operations manual that consists of all of the processes within your company.
  • A timetable for training and turnover to your successor or successors.
  • Identification of the critical functions of your company.
  • A plan for training the person or persons in each of the critical functions identified.
  • A time period for your successor to be “in charge” while you are still around to mentor and guide them.
  • A few key employees identified in the event that your successor leaves.


Develop a Contingency Plan

Planning for retirement is very important, but what if something happens before that? You need to develop a plan B or C that includes who will take over or fill-in in the event of your absence.


Prepare for retirement

If you have a good training and turnover plan, when it comes time for retirement you will need to be ready for the slow transition over from operating the business to entering into retirement. Outline a plan for your transition. Will you travel? Enter into a new business venture? Know what retirement means for you.


Transition your business

The transition of a business from one owner to another is not as simple as one day you’re there the next day you’re not. There are several things you will need to take care of before the transition is complete.

  • Ensure that the proper people are in place and staffing is at proper levels.
  • Resolve any outstanding issues.
  • Prepare historical and projected financial statements.
  • Prepare a business plan for the future.
  • Secure client relationships.
  • Ensure the office is up-to par and there are no outstanding maintenance issues.
  • Have each key employee sign an employment agreement including non-compete, confidentiality and non-solicitation provisions, as well as the employee’s agreement for the employment agreement to be assigned to a new owner or entity.

If you are turning it over to family you will also need to:

  • Look at the tax implications involved in family succession planning.
  • Be sure to have the proper estate documents prepared.
  • Obtaining expert advice is advisable in making these complex decisions.


Selling and Closing Your Business

You should also consider the possibility of selling or closing your business when it comes time to retire. Having a succession plan means thinking about and planning for all of the possibilities.

If you are thinking of selling the business, you need to determine whether the business is saleable.

You’ll need to look at things like:

  • Profitability.
  • Location. Is it in a desirable location?
  • Are your assets in good shape?
  • Do you have a strong customer base?
  • Is the business transferable? If it’s only you it may not be.

You’ll need to also determine the price of your business based on your assets and revenue stream.

Prospective successors or buyers:

  • Employees with management experience and the skills to take over.
  • Strategic Buyers (business owners who offer complimentary services).
  • Competitors.
  • Family members who have grown up in the business.
  • Individuals with financial resources who want to own a business.

You also have the option of closing the business all together. Here are some indicators that you may need to just close your business.

  • The company is too small, not enough assets or profitability.
  • Business is in serious decline.
  • The market is saturated where it wasn’t before.
  • The liquidation value would be greater that the proceeds from a sale.

If this is the case, you will need to file Dissolution with the state to certify the closing of the business, sell your business assets, cancel all permits, licenses, and lease agreements, and resolve outstanding issues.

This is a lot to think about and plan, which is why you need to start now. Many business owners get bogged down in the day-to-day or year-to-year. Planning for retirement and the future of your business after you’re gone is important. Handing your business over to a successor is not an easy task so start planning now and you will make your retirement a lot less stressful.