Heidi Bolger

Is There an Ideal Time to Create a Succession Plan and Transition Ownership?

Two very different scenarios revealed and how CPAs can help.

September 6, 2011
by Heidi Bolger, CPA, ABV

As trusted advisor CPAs, our unceasing responsibility is to look out for the best interests of our clients. When it comes to succession planning, we have all heard about or experienced the consequences of clients who did not have a plan in place and even as the years rolled by, continued to ignore the necessity to plan. For example, in a recent trip to a home furnishings store, I made a purchase from the owner who was likely in his mid-80s. He asked my husband to stand on an office chair to retrieve the item I wanted to purchase, since he had been feeling “a little dizzy” that day. In addition, I observed less than respectful treatment toward this elderly gentleman, by a younger employee who referred to him as “the boss.” Who wants to be “the boss” under those circumstances? I left the store wondering whether “the boss” had taken any steps to get his succession plan in order. Facing the succession issue is inevitable for all successful business owners — and surely there is a chance for a better outcome if the planning is done before 80 years of age.

In the big picture, there are two very different scenarios to cover with a succession plan:

  1. Owner’s sincere desire to exit the business at a planned point in time.
  2. Owner’s unforeseen exit of the business as a result of an event beyond their control (such as death, disability, etc.).

Unforeseen Exit

When should an owner focus on planning for an unforeseen exit? At the time they become a business owner, whether by starting a business or acquiring ownership through a gift or sale. If there are other owners in the business willing to “buy” each other out at the time of an unforeseen exit (documented in a buy/sell agreement), the problem may be solved. If they are a sole owner, the plan becomes more complicated, with consideration to all of the following:

  1. Who needs to oversee a successful transition of the business?
  2. How would the owner(s) prefer to see the transition handled?

  3. What are the results/outcomes the owner would hope for as a result of the plan? Possibilities can include keeping the business family-owned in the short- and long-run, having business cash-flow directed to support the surviving spouse, selling off assets through a controlled auction sale and more.

  4. When would the actual ownership transition(s) occur? This aspect provides for young family members or other successors to gain the seasoning needed to become effective owners.

Planned Exit

Arranging a graceful, fruitful exit for an owner who has a sincere desire to turn over their business and get on with their life is the best case scenario, one for which we can help our clients plan. The question of when this planning should take place is often more emotionally, than logically driven.

A passionate, young, healthy entrepreneur rarely contemplates their exit as long as things are going well and they are having fun running their business. In my experience, most owners begin thinking about the next round of ownership in their mid-50s. For many, this corresponds with the time that children are grown and settling into careers (inside or outside the family business), and the owner’s energy level and interest in the business has begun to fade.

As CPAs, we recognize that the sooner a succession plan is developed, the more options are available. This is particularly true if stock gifts are part of the plan and family members or key employees need growing time. However, engaging your client in succession planning before they are ready can turn into a failed attempt and negatively impact their willingness to invest time in future planning. My advice is to invite clients to begin the succession planning process in their 40s, but understand that they may not be ready for it emotionally until they reach their 50s and some may even hold out until their 60s or 70s. Even if they delay turning over stock ownership, these owners should be actively engaged in attracting and developing a replacement management team in the meantime.

When to Begin Relinquishing Stock Ownership

It’s one thing to share management responsibility and quite another to give up stock ownership. After all, the shareholder with a controlling interest has ultimate decision-making authority in their business. Important issues such as who gets paid how much, the strategic direction of the business, what capital and other expenditures get made (including dividends) and who plays which roles are not easy to give it up. The reality is, however, that anything with over 50-percent ownership is enough to keep your client in a position of control. Moving stock to others doesn’t really detract from these rights in a technical sense. With shared ownership, most owners do feel some level of obligation to at least share information about key decisions, if not to seek input.

In thinking about how much ownership to transfer and when, it’s helpful to consider the continuum below:

Scenario A                

Scenario B

  • Sell 100%


  • Smaller incremental sales of stock
  • Exit your business and get cash up-front


  • Stay working in your business and get little or no up-front cash payment(s)

In Scenario A, the sale will most likely be to an unrelated buyer in which a transaction might typically be consummated in nine to 18 months, with a quick turnover of ownership and payment for the business at closing. Contrast this with Scenario B, in which the transition may span a long period of time, leaving the owner in control with trickling-in payments. A couple of considerations in Scenario B are:

  • The owner’s desired continuing role in the business.
  • When the owner will have received the majority of their payout and what type and value of collateral they may have to secure the balance due.
  • How the owner/seller feels about ongoing interaction with the buyer.

In general, the more significant the role your client wants to continue to play in the business:

  • The greater the balance they may tolerate being owed to them.
  • The less desire they may have to be interactive with the buyer on business issues.
  • The more your client should consider hanging on to control until they are out of the door with payoff in hand.


Of course, family situations can be a little different, but rest assured that children don’t want their parents napping around the office in their 80s. One way to provide children ownership, but not full control, is to use non-voting shares to shift ownership.

There’s certainly a lot to contemplate in planning for succession in both an unexpected and full contemplated transition along with deciding when to turn over voting control. In an upcoming article, I will reveal how to maximize the value of your client’s business as you work on their succession plan.

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Heidi Bolger, CPA, ABV, CFFA, CMAP, is a founding Principal of Rehmann Consulting and advises clients in the areas of succession planning and business sales.