By Rick Hellberg, ChFC®, CLU and Michael Diaz

At the inspired first spark of an idea to start a new venture, I’m assuming most people don’t think about what it will look like to eventually transition out of the ownership role. But after the years of blood, sweat, and tears building a sustainable business, all business owners have at some point considered the ultimate transition of their business. Unfortunately, less than 25% of business owners have established a formal written business succession plan. (1) Since every single business owner will one day transition their business at some point, advanced planning is critical to achieve their aspirations—both for their company and family.

This failure to plan is often due to two reasons. First, business owners are much better working in their business than on their business—as they should be. Second, the process of creating a proper succession plan can be difficult and overwhelming. This is where professionals can greatly assist owners by illustrating and implementing a clear and concise process from beginning to end. 

Here’s a glance at what our team will cover in our stage-by-stage process. 

Stage One: Initial Learning Meeting

Defining exit objectives and goals:

  • Desired departure date?
  • Income / financial security requirements?
  • What exit route can I take?

Stage Two: Gathering Of Financial & Non-Financial Information

Personal financial analysis: 

  • Review existing financial, estate, and business plans.
  • Determine gaps in each of these plans, if any.
  • Discuss wants and needs. 

Stage Three: Determination Of Business Value

Current valuation and the development of value drivers:

  • Analyze each exit route to determine how to protect and increase business value and understand the tax implications of ownership transfer through sale, gift, and estate. 
  • Obtain a formal valuation performed by an independent third party to set a fair price for company stock based on a consistent methodology for valuing the stock in the future. Include a reasonable discount for lack of marketability and minority interest, if applicable. This provides a benchmark for buy-sell agreements, executive compensation equity-based plans, etc.

Stage Four: Choosing An Exit/Transition Route

  • Sell to an outside third party (financial or strategic buyer).
  • Sell to employees using an Employee Stock Ownership Plan (ESOP)*.
  • Sell the business to one or more key employees (management buyout).
  • Sell to remaining shareholders.
  • Transfer the company to family member(s).
  • Retain ownership but become a passive owner.

Stage Five: Implementation Of Chosen Business Exit Route And Post-Transaction Servicing

  • Engage shareholders and the company to execute the chosen business exit route (external or internal sale or transfer).
  • Develop a contingency plan for the business (define key succession management, and be able to answer who will run the business in the event of a death or disability of current operational shareholders).
  • Develop a contingency plan for the owner’s family (financial, estate, and charitable planning).
  • Develop an ongoing servicing plan for the business and family (ongoing review to ensure that planning is being followed and to advise in the event of life changes within the family or succession management).

We’re Here To Help

Transitioning your business and relinquishing the reins will likely involve a mixture of emotions. As with any important business decision (and especially when it’s emotional), it’s wise to partner with a financial professional, an objective and knowledgeable third party. We at PeterAlexander would be honored to help guide you through these decisions, the transition, and whatever comes next. To set up an introductory meeting, reach out to us at 610.940.1441 or info@peteralexanderinc.com.

About Rick

Rick Hellberg is president and CEO of PeterAlexander, a financial planning firm founded in 1991. Rick is passionate about providing quality, objective financial solutions so his clients can pursue their financial goals and create the legacy they desire. He strives to equip his clients with comprehensive financial services and advice so they can be empowered to make sound financial decisions. The plans Rick and his team develop help their clients to reduce their taxes, educate their children, fund their retirements, pass their businesses on at fair value, and create programs to attract and retain valuable employees, all so that they can focus on what matters most to them. Rick has a bachelor’s degree in liberal arts from Penn State, along with the Chartered Financial Consultant® (ChFC®) and Chartered Life Underwriter (CLU) designations. He has spent over 40 years working with successful individuals and designs tailored solutions to meet his clients’ unique needs. 

Rick resides in Philadelphia with his lovely wife, Lisa, and their two Shiloh Shepherds, Bentley and Winston. He is also the very proud father of two wonderful young men, Peter and Alex. In 2010, Rick ran for Congress in the 2nd District of Pennsylvania and has stayed active in local politics. To learn more about Rick, connect with him on LinkedIn.

About Michael

Michael Diaz is a financial advisor at PeterAlexander with over 15 years of industry experience. Michael is passionate about helping people overcome financial challenges and avoid potential pitfalls so they can focus their time and energy on the most important things in their life. He spends his days working with successful business owners and families, implementing investment and tax reduction strategies to maximize their wealth. Michael’s goal is to help protect his clients’ financial security, putting them first and helping them navigate every stage in their financial journey. Michael earned his Bachelor of Science in Commerce and Engineering from Drexel University. When he’s not working, you can find Michael traveling, cheering on local sports teams, and exercising outdoors. Michael loves spending time with his wife, Abby, and their baby girl, Monroe. To learn more about Michael, connect with him on LinkedIn.

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(1) https://www2.deloitte.com/content/dam/Deloitte/us/Documents/deloitte-private/us-dges-business-succession-planning-collection.pdf