Business Succession Planning

Maximizing Your Wealth and Securing Your Company's Future

You built it and have watched it grow. By now, your business could be your most valuable asset. Protecting it for the future is important to you, your family and your employees. When the time comes for the eventual transfer of ownership and management, how do you ensure the success of something you have worked so hard to create, while at the same time providing for yourself and your family?

City National's planning professionals can assist you in determining the business succession approach that will help you maximize the wealth that's tied-up in your business, and secure the future for you and your company. An advisor will sit with you to review your current financial situation and future goals, and then address these five key steps for planning a successful transition.

Five key steps for business succession planning

1. Determine When
Do you want to transfer ownership all at once, over several years or at death via your estate? This decision may depend on the current state of your business and on your personal and financial goals. By developing a business succession plan early, you help ensure your business will be ready for a transfer of ownership when you are.

2. Choose the Owner(s)
The ultimate distribution of ownership depends upon your overall objective. Possible future owners can include:

  • Family members who already participate in the business
  • Family members who do not participate in the business
  • Other co-owners or employees of the company
  • An outside third party

Each type of owner will have different issues to address. For example, if you are transferring ownership to your children who are already actively involved in the business, you'll need to determine how to compensate your other children who are not involved in the business.

3. Decide How to Transfer
City National's planning professionals can help you determine the transfer option that will best help you achieve your financial goals. We will review your personal financial objectives, estate plan and income sources after retirement. Depending on your situation, you might consider one of the following scenarios for selling or gifting, or some combination of both:

  • Sale
    The sale price of a business can greatly impact the future income a business owner receives. One way to better understand the price you will require to fulfill your lifestyle needs is to have your planner run multiple scenarios pairing different sales prices with different asset allocation strategies.
    − Strategies to maximize a sale include:
    • Private Sale
    • Employee Stock Ownership Plan (ESOP)
    • Initial Public Offering (IPO)
  • Gift
    Coordinating gifts well in advance of a future sale will provide better opportunities to maximize the eventual wealth transferred a well as minimizing taxes.
    − Strategies that minimize Gift Tax include:
    • Grantor Retained Annuity Trust (GRAT)
    • Defective Grantor Trust (DGT)
    • Family Limited Partnerships (FLP)

4. Select Future Management
Ownership is not necessarily the same as management. Determining who will manage the firm can be a difficult decision. However, an essential part of succession planning is selecting the successor manager and key employees you would like to retain.

It's important to consider the level of training and preparation the future manager will need in order to be adequately prepared for executive and management responsibilities after the transfer occurs.

Another key consideration in selecting your future management is identifying a manager who your customers, suppliers and business contacts will readily accept.

By having a clear, well-considered plan in place you help ensure that you can retire when you are ready without worrying about the ongoing management of your business.

5. Create a Management Transfer Timeline
The transfer of management responsibilities can occur upon your retirement, or you may prefer to gradually phase-out your involvement over time. Do you want to work less now? How long do you want to stay active in your business? Either way, be sure to have a contingency plan and the necessary documentation in place should you become incapacitated.

Your ideal team of advisors

In building a successful transition plan, it's important to bring together a team of the right advisors to help you address the important questions and issues that arise as you organize the transfer of your business.

This team's overall objective should be to help you determine your goals and create the right plan to achieve them. Most advisory teams are comprised of a CPA, an attorney with business and estate planning experience, a financial planner, a banker, an insurance agent and a certified business appraiser. Working together, they can help you formulate a plan that successfully addresses the key issues of tax and retirement planning, business ownership, and management.

Getting Started

To learn more, call us at (800) 773-7100, Monday through Thursday, 6:00 a.m. to 5:30 p.m., and Friday, 6:00 a.m. to 6:00 p.m. (PT). You can also contact us online or visit one of our local City National locations.

Investment and Insurance products:
  • Are Not insured by the FDIC or any other federal government agency
  • Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
  • May Lose Value

City National, as a matter of policy, does not give tax, accounting, regulatory or legal advice. The effectiveness of the strategies presented in this document will depend on the unique characteristics of your situation and on a number of complex factors. Rules in the areas of law, tax and accounting are subject to change and open to varying interpretations. The strategies presented in this document were not intended to be used, and cannot be used for the purpose of avoiding any tax penalties that may be imposed. The strategies were not written to support the promotion or marketing to another person any transaction or matter addressed. Before implementation, you should consult with your other advisors on the tax, accounting and legal implications of the proposed strategies based on your particular circumstances.