How to Succeed at Succession Planning
In this episode of “The Bottom Line,” EisnerAmper’s private business services manager Tim Schuster tackles the always popular—and sometimes contentious—issue of succession planning. Tim covers the challenges and underlying financial issues and gives his prescription for a healthy business transition.
Dave Plaskow: Hello and welcome to The Bottom Line. This podcast examines the everyday business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use in what we like to think of as a “jargon-free” zone. I’m your host Dave Plaskow and with us again is Tim Schuster, a manager in EisnerAmper’s Private Business Services Group. Well Tim, we’ve made it to our second episode and they haven’t thrown us off the air yet, so things are looking pretty good. In the debut episode we essentially talked about the formation of a business. Here we’re looking at the other end - succession planning, which is always a hot topic.
Tim Schuster: Dave, it’s good to be back.
DP: I’ve read that $10 trillion in U.S. assets may be transferred by 2025. Much of it is related to privately owned business – that’s a staggering number.
TS: It truly is a staggering number. It’s so staggering, in fact, that if you ever write down $10,000,000,000,000 there are a lot of zeros there.
TS: A couple of things come to mind here. Baby Boomers are retiring in droves, and, honestly, the majority probably don’t have any kind of a transition plan.
DP:What are the unique challenges with succession planning for our listeners?
TS: I spoke briefly about not having any sort of plan. You want to make sure that something is written down for succession purposes. There are a lot of healthy and motivated owners who are past their traditional retirement age. They’re trying to figure out how to both stay in the businesses they love, while trying to make room for the next generation. There is a challenge with this, but we can help by providing a range of transition options that create new and valuable roles for aging owners who still want to be involved. The next thing is leadership succession. Companies should start earmarking potential employees who could take over and then coach them. Businesses with multiple family members involved can be an emotionally charged situation, so you have to consider that, too.
DP:So you have to beware of (in addition to the business and financial) the emotional, psychological and personal aspects.
TS: Absolutely. They’re just as important as the business-side.
DP:What are some of the underlying financial issues?
TS: We’re looking at things like valuing the business. Unfortunately, what some people tend to see is when the business is their baby, their value of the company might be higher than what actually comes out on the piece of paper after they go through a valuation report. Selling all or part of the business can be a tough discussion to have. There’s also the estate planning issues. As I said before, there are a lot of Baby Boomers who are looking to retire. So you want to make sure that for tax purposes they’re setting up their estates properly. The last thing I can think of is wealth management. It goes hand in hand with valuing the business. If the business is valued lower than what was expected, will the owner have the wealth he or she needs for retirement?
DP:Right. To protect it, preserve it, and hopefully grow it.
DP:One tactic with respect to succession planning is the buy/sell agreement. Tell us a little bit about that.
TS: This is a common issue that we see with clients. One of the first things we actually ask for when we get a new client is “do you have a buy/sell agreement?” And for those who don’t know what a buy/sell agreement is, this governs the situation if an owner dies, becomes disabled, or is forced to leave or chooses to leave. Having one in place will take emotions, or as much of the emotions as you can, off the table before making a hasty or costly decision for the business.
DP:In your role as a business advisor, what’s your business philosophy? At what vantage point do you operate from when advising clients?
TS: This is a common theme that you might be hearing throughout the course of this podcast and it’s having a plan. I can’t say that enough. As a business advisor, I try to be the single point of contact for business and personal needs and quarterback the other services providers. You may have attorneys, insurance agents, accountants and others involved. This is so important, in fact, that at EisnerAmper we created the Center for Family Business Excellence. We want to emphasize that the Center will work with clients to determine which path is right for them. We believe in the value of the family and the business. We want to help family businesses to both survive and thrive as they transition from one generation to the next.
DP:Any particular client case studies come to mind, obviously without mentioning any names of course? Any interesting issues that you’ve run up against; any unique or funny stories?
TS: It’s interesting. As I’m thinking about this, a multitude of clients have many of the underlying challenges discussed here, and what I emphasize is communication. Communication seems to be the main issue when the first or second generation wants to pass the business off to the next generation. Either the next generation is not ready or does not want the business, but neither party is actually speaking to the other and having the honest conversations they need to have. The first thing we ask is “have you actually spoken to them?” “Oh, Johnny really wants to take it over.” If Johnny wants to take the business over that’s great. If that’s not the case then obviously a different conversation needs to happen. But it’s not good when whoever is in charge isn’t actually having those conversations with the people who are going to be the successors of their business.
DP:So a lot of facilitating and communication.
DP:Tim, this is the part of our show where I really think you get to shine. This is where you give us, as a member of the New Jersey Historical Society, your NJ fun fact. Let’s have it.
TS: I’m actually going to skip the New Jersey fact this time just because I think this one is actually hilarious. The U.S. Supreme Court actually has a basketball court in its building, dubbed the highest court in the land.
DP:Is it a working court?
TS: It’s a working basketball court. The judges go up there and play. Unfortunately, the public can’t play there. It’s actually dubbed the highest court in the land because the actual U. S. Supreme Court is on the second floor, and the basketball court is on the fifth.
DP:Interesting, I never knew that. Pretty cool. Well Tim, thanks again for all the knowledge.
TS: My pleasure Dave.
DP:And thank you for listening to the bottom line as part of the EisnerAmper podcast series. If you have any questions or there’s a topic that you’d like us to cover, email us at email@example.com. Visit EisnerAmper.com for more information on this, and a host of other topics. And join us for our next podcast when we get down to business.
In this episode of The Bottom Line, EisnerAmper Private Business Manager Tim Schuster discusses developing a quarterly planning calendar, including budget, tax planning and speaking with your trusted advisor. Review these concepts monthly from an accounting perspective.
In the wake of the government shutdown, Tim Schuster offers tips on creating an emergency fund. To avoid living paycheck to paycheck, Tim suggests putting money into a separate savings account, as well as a portion of any windfalls. Emergency funds should include medical expenses.
Tim Schuster from EisnerAmper’s Private Business Services Group talks about the family issues and financial burdens for members of the sandwich generation - those individuals who are responsible for raising their children as well as caring for aging parents.
As New Jersey initiates paid employee sick leave The Bottom Line examines the requirements for business owners. Some reasons for which employees can use sick leave include an employee's own personal medical treatment or legal services, or that of a family member.
EisnerAmper’s Private Business Services Group Manager discusses the current unemployment rate and the booming economy despite current trade tariffs. To help attract employees, businesses are offering incentives such as assisting with student loans to attract millennials.
EisnerAmper’s Private Business Services Group partner discusses estate planning and the need to have a will - from an online provider or an estate planning professional - to help your heirs understand your estate asset wishes and the Tax Cuts and Jobs Act estate tax thresholds.
The Bottom Line looks at some of the common IRS scams out there and what you should do if you fall victim to one of these scammers, including email and personal data hacks, ID theft and fraudulent returns. Contact your accountant if you think you’re a victim of a scam
The landmark Supreme Court decision in the Wayfair case on e-commerce taxation allows states to collect sales tax on e-commerce companies, even without brick and mortar locations in that state, affecting all e-commerce companies such as Amazon. Accountant guidance is suggested.
This podcast discusses the New Jersey Department of Labor and the employee or independent contractor (freelance work) classification under new Tax Cuts. A DOL audit might look at your Facebook and LinkedIn, and can also change your employee or contractor classification.
This episode of The Bottom Line looks at New Jersey Governor Phil Murphy’s inaugural NJ budget. The discussion includes the Governor's proposed New Jersey's state tax on Uber and Airbnb, addressing tax loopholes for hedge funds and New Jersey tax's effect on the gig economy.
In this episode of The Bottom Line, Tim Schuster discusses some of the individual taxation questions bubbling up from clients in the wake of tax reform including adjusted gross income changes, private business taxation, QBI, and the importance of talking with your tax advisor.
This episode of “The Bottom Line” discusses new tax reform changes including C corp and individual taxpayer changes, NOLs, double taxation and bonus depreciation. Tim Schuster came up with a top seven list of business tax reform questions he's been receiving from clients.
In this episode of “The Bottom Line,” Tim Schuster talks about the benefits of retirement savings plans for small businesses, including SEP IRAs, SIMPLE IRAs, and Solo 401(k) plans, as well as eligibility and contribution limits set for small business contributions.
Tim Schuster discusses how starting a college savings account – sooner rather than later – can help alleviate sticker shock for your child’s college education. He talks about the different state-sponsored 529 plans, what you can use the money for, the tax benefits and more.
EisnerAmper’s examines the differences between different Health Spending Accounts including HSAs, HRAs and FSAs. It is recommended you speak with your tax advisor about qualified medical expenses and pending tax reform's affect on health spending accounts.
EisnerAmper's Tim Schuster looks at several categories of SBA loans for working capital. He covers the loan approval process, SBA 504, real estate exclusions and how business advisors can help you make the most of the Small Business Administration (SBA) loan process.
EisnerAmper's private business manager, Tim Schuster discusses the need for proactive disaster planning for private businesses, as well as business interruption insurance in the event that your disaster planning fails. FEMA offers online disaster planning recovery courses.
In this episode, Tim breaks down what a closely held business is, the different business formats such as LLC LLP and S Corp, and how this impacts the role of business advisors. Regardless of business structure, your accountant, banker and lawyer all need to be on the same page.