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Succession Planning in Turbulent Times—Operating Companies Need an Operator

By January 19, 2012October 24th, 2018Estate Planning Blog, Fred Whitaker

Fred Whitaker

If you have a lawyer, a CPA, or a financial planner, you have probably been inundated in the last few months with urgent calls, e-mails, newsletters and the like imploring that you take action. The five million dollar per person ($10mm husband & wife) lifetime exemption is set to expire at the end of this year.  If you don’t act, you could lose the most generous generational transfer tool in the history of the US Tax Code!

Deadlines tend to focus ones attention, but they can also cause people to panic.  What if transferring your business to your heirs isn’t wise?  What if transferring that business before it is ready diminishes the value, uses your lifetime exemption needlessly and reduces you’re ability to make a living?

John Brown – the renowned expert in succession planning at the Business Enterprise Institute in Colorado developed a Seven Step Process ™ for succession planning that is the gold but also the universal standard advisors and business owners follow:

“Step 1 – Identify Owner Objectives
Step 2 – Quantify Business and Personal Financial Resources
Step 3 – Maximize and Protect Business Value
Step 4 – Ownership Transfers to Third Parties
Step 5 – Ownership Transfers to Insiders
Step 6 – Business Continuity
Step 7 – Personal Wealth and Estate Planning”™

Notice that “Personal Wealth and Estate Planning” is last.  It only happens after the other elements are in place.  Further in my experience over the last 22 years of private and in-house practice evaluating companies and owner goals, I believe that Steps 3 & 6 are the most important. Both depend on one key element –having an heir apparent, an operator to succeed you.

Operating businesses—whether you want to sell your business to a third party, your employees, or give it to your heirs—need an operator to have longevity and value you can harvest.  If you are the only one that can run it, it won’t last very long if you give it away, and it won’t be worth very much if you try to sell.  Value is based on the prediction that current performance will continue in your absence.

Yet, many entrepreneurs don’t take the time to mentor a successor.  So as we have 12 months to act, I’m urging you to not worry about the Estate and Gift Tax deadline just yet but to begin thinking about a successor.

Next month, I will share with you nine qualities that make a successful business operator which will allow you to mindfully evaluate successor candidates.

Fred M. Whitaker, Senior Partner at Cummins & White, LLP is California Independent Oil Marketers Association’s (CIOMA) recommended vendor for succession planning. He contributes monthly articles related to succession planning to the association’s email newsletter, and we will be posting them here, as a guest blogger. If you have questions related to this article, please contact Fred Whitaker at (949) 852-1800 or