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Succession planning leads to smoother ownership transitions

By Traci DeLore (tdelore@cnybj.com)

Date:

SYRACUSE, N.Y. — Business owners can perform one simple self-test to determine if they need to do succession planning for their business.

Richard Scrimale

“Any business who looks out and says in 5 to 10 years, I don’t want to do this anymore,” should start succession planning now, says Richard Scrimale, chair of the business department and succession planning counsel at Hancock Estabrook, LLP in Syracuse.

Succession planning, in its most basic terms, is how a business will transition intact to new leadership or owners.

That planning should cover two main aspects, Scrimale adds. First is the actual business and how it will move forward with new ownership. The second, and more challenging aspect, is how to structure that change financially and with the best possible tax outcomes for all involved parties.

That second part, Scrimale adds, is why succession planning is not a do-it-yourself business project. Working with a professional — typically a lawyer — helps business owners avoid potential planning pitfalls, he says.

While many business owners often first reach out to their CPA or even their insurance agent to ask about succession planning, Scrimale prefers a team approach that includes those people, as well as the businesses attorney, financial planner, and banker. That gives the full picture of the business and how to best structure the succession plan.

“My job as a business-succession planner is to try to set the business up for success post-succession,” he says. But it’s also a lot more than that. Part of the planning process is figuring out when the ownership switch will happen, how it will take place, and whether the departing owner wants a clean break or needs to have some sort of residual income from the deal.

The next step is to figure out how to set that all up in a way that positions the new owner for success with good cash flow and maximized deductions with minimum tax impact for the departing owner.

“There is no cookie cutter, one-plan-fits-all,” he says. And succession planning is not the area where you want to just make a handshake deal, Scrimale adds. “Put it out in writing and lay it out there.” That way, there’s no confusion and everyone is on the same page.

The work doesn’t end once the plan is created either, Scrimale notes. Business owners not only need to create a plan in advance of when they want to depart the business, but they also need to check on it from time to time before they leave.

Life happens, Scrimale says, and events like divorce, marriage, health problems, death, and even a change of heart can all impact a succession plan as can changing legislation.

“Did the tax law change?” he asks. “You have to keep your eye on the tax laws and make sure your structure is still a tax-advantageous structure.”  

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