Boomers May Go Bust Without Business Succession Plan

The solution for his clients in this situation is to "Grow your own successor," he says.

OConnor explains these clients need to look for someone they would feel comfortable with handling their business and who would be willing and able to take over. This means that a big part of any business succession plan is taking care of key employees. "So, part of your succession plan is key person," he says.

Key employee planning in these situations is extremely important because "key employees are loyal to the owner, theyre not loyal to the business," Daroff adds.

And while he estimates that these key employee successors can be found internally 75%-80% of the time, those businesses that dont have a good potential successor can have a difficult time finding one.

For Robert Sunshine of Sagemark Consulting in Irvine, Calif., one place some of his clients have found potential successors is at the business owners own trade association meetings.

"One of the things associations can do is expand the business owners contacts–maybe there are some opportunities with another person in that industry who he can build a succession plan with," says Sunshine.

Keen adds that sometimes the best place to find a successor is through the businesss friendly competitors. "Its a lot easier to do that during that individuals lifetime than at his death," he says.

But Sunshine cautions his clients to be careful when looking for a buyer since some competitors may try to use this information against them. "You dont want to run an ad in the trade journal. Youve got to build those relationships," he says.

For those businesses that will not be sold to provide a secure retirement, there is still a great deal of planning that needs to be done in the event of the owners death or disability.

Tying up loose ends in these cases involves more than the proper estate planning and liquidation of business assets. For many of Sunshines clients, "there might be jobs still in progress." He adds that when working with business owners in the construction business, its not uncommon for a contract job to be going on for months, and sometimes years, after an owners death.

In these instances, a strategy Sunshine employs is to keep a key employee on board after the owners death to close down the business to the satisfaction of the widow, the management staff and the owners advisors. "For example, well contractually pay a bonus of $100,000 over and above your salary once this is satisfactorily completed," he says.

Reproduced from National Underwriter Edition, February 10, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.