Guide to Our Succession Planning Services at The Whitlock Co.

Succession planning for your business involves so much more than signing your company over to the next people in line, whether they are family members or not. Planning the future of your business requires a strategic process to have a smooth transition within the top roles of your organization to minimize disruptions.

The Whitlock Co. can help with some aspects of your company’s succession planning.

Tax Planning & Structuring

Both the buyer and seller of your company face tax implications with the succession plan. The overall goal is to optimize tax liabilities to preserve wealth and ensure a smooth transfer of ownership. The Whitlock Co. can help your finance team navigate complex tax laws to minimize financial burdens and help you and the new owner take steps to realize your financial goals.

Our team will identify potential tax consequences, such as capital gains taxes, estate taxes, or gift taxes, that may arise from the sale of the company or if the company is a gift.

Several techniques can optimize this process, such as:

• Gifting shares
• Creating trusts
• Restructuring the business
• Asset sale vs. stock sale
• Installment sales
• Deferring capital gains through employee stock ownership plans (ESOP)
• Refinancing debts
• Contributing additional capital
• Conducting repairs or improvements that qualify as deductible expenses
• Gains from the sale of stock for a qualified small business (QSB)

These techniques can help preserve the current owner’s wealth while giving the new owner a better tax liability standing for the coming years.

Development of Succession Plans

The Whitlock Co. can help your company with the financial aspects of business continuity planning (BCP) as you prepare for the sale of your business. The goal of this phase is to identify potential financial risks, develop strategies to mitigate them, and create actionable plans to maintain business finances at current levels.

The process begins with a risk assessment to identify financial threats, such as customers leaving after the succession, additional funding for sales and marketing efforts, setting aside revenue for any internal promotions that arise, and other issues.

Then, once we look into funding these items, we’ll conduct a business impact analysis (BIA) to determine the financial consequences of the succession. Next, we strategize for the future to outline when the company moves forward after the succession concludes.

Real-World Execution of Your Succession Planning Strategy

A real-world example would follow something like this:

Let’s say you’ve been the owner of a manufacturing company for 30 years. Your expertise and knowledge are irreplaceable when it comes to the relationships you’ve developed and the innovations you’ve produced.

You announced your retirement two years ahead of selling the business to your two children, both of whom will take ownership roles. Your children have already been mentored by the simple fact that they’ve seen your work in the industry for their entire lives.

However, three senior-level employees are about to take on new senior roles as part of the succession planning process. As such, you and your children will mentor these three senior team members. That will take staffing time and some extra revenue to pay for their new positions.

Part of our business continuity plan will be to make sure your team allocates enough funding and resources for mentoring and any new positions that arise from internal promotions.

Strategic Growth & Development

A growth and development plan is designed to align your company's financial resources with its long-term objectives during and after the transition. This planning involves evaluating the current financial health of your company, forecasting future needs, and implementing strategies to meet the demands of succession.

We’ll conduct a comprehensive financial assessment and analysis, identifying your company's assets, liabilities, revenue streams, and cash flow. Next, we’ll help you create a growth-focused financial strategy, allocating resources to strengthen operations, fund innovations, and expand market reach while preparing for the financial demands of succession.

A real-world example illustrates the impact of financial planning in succession. Let’s say you want to implement a financial plan emphasizing growth by reinvesting profits into modernizing equipment and entering new markets.

To fund the transition, you establish a trust to transfer shares to family members over time, reducing tax burdens. Additionally, you secure a line of credit to ensure cash flow during the leadership shift that prioritizes low interest and quickly pays off the loan.

Implementation Support

We provide transition support during the transition phase of the succession, including financial oversight and guidance. The Whitlock Co. monitors financial performance during the transition and suggests necessary adjustments. We also help with communication throughout the process.

Part of the process may look like this:

The Whitlock Co. identifies KPIs that align with the business's strategic goals during the succession. These may include revenue growth, profit margins, cash flow, debt-to-equity ratios, and working capital.

We monitor these numbers through detailed financial analysis and reporting, income statements, balance sheets, and cash flow statements at regular intervals. These reports allow stakeholders to track performance trends, identify irregularities, and make informed decisions during the transition.

We will also monitor budgets to ensure financial discipline. By comparing actual performance against budgets, we can identify variances and investigate their causes, enabling quick corrective actions to make sure the business succession plan stays on track.

For example, The Whitlock Co. might monitor sales revenue and inventory turnover to ensure operational efficiency at a manufacturer. We would also track cash reserves to fund the new leadership's strategic growth initiatives. By identifying variances in projected and actual earnings early, we may adjust pricing strategies, ensuring profitability and a successful transition.

Risk Management

What are the financial risks of succession planning? As part of our support services, we can identify potential risks and implement strategies to mitigate them throughout the transition process.

The process begins with a comprehensive risk assessment, where The Whitlock Co. identifies financial, operational, and market risks associated with the succession. These may include cash flow disruptions and tax liabilities.

Next, we’ll make sure to create financial buffers, such as reserve funds or access to credit lines, to address unexpected costs or revenue fluctuations during the transition. Risk transfer mechanisms, such as insurance policies, are also recommended to cover liabilities, property loss, or leadership incapacitation.

We’ll also review tax regulations while minimizing liabilities through strategies like deferring taxes, utilizing trusts, or restructuring ownership. This reduces the financial risks tied to tax liabilities.

The Whitlock Co. will conduct scenario analysis and stress testing to evaluate your company’s resilience under various conditions, such as economic downturns, supply chain disruptions, or changes in leadership effectiveness. These insights guide decision-making and resource allocation.

For instance, during the succession of a technology company, we might identify key risks in cash flow and client retention. We could implement a financial reserve strategy and advise on leadership development to retain key clients who might seek business elsewhere after the company changes hands.

Retirement Planning

The Whitlock Co. can help with the tax liabilities faced by people who are managing wealth into retirement after selling their company. A well-thought-out strategy ensures financial security while allowing you, as the business owner, to transition smoothly into your golden years.

We will help you define retirement goals versus how much of your personal wealth you want to leave behind to your new company owners and then help you with tax planning. The goal of tax planning is to minimize your tax liabilities associated with the sale or transfer of the business. Strategies might include gifting shares to family members, utilizing trusts, or reinvesting proceeds into tax-advantaged accounts like IRAs or 401(k)s.

Diversifying personal investments is essential to reduce reliance on the business for income. Owners should allocate proceeds from the sale or transfer into diversified portfolios, ensuring a steady income stream and long-term growth potential. Our wealth management partner, Oppenheimer & Co., has a wide range of investment options and expertise to guide your wealth-building in retirement.

Estate Planning

Estate planning is also crucial to a business owner’s needs when they retire. How much do you want to leave to your heirs? The Whitlock Co. can help you develop a financially sound estate plan that blends the transferring of assets, preserving wealth, and making the most efficient use of income taxes.

We start with a comprehensive evaluation of the owner’s assets, including the business, investments, real estate, and personal holdings. Then, we look at things from a tax optimization standpoint. We’ll advise you on techniques like family limited partnerships (FLPs), trusts, or gifting strategies to reduce tax liabilities. For instance, transferring business ownership gradually through annual gift exclusions or leveraging the lifetime gift tax exemption can minimize taxable value.

For example, we might help a family-owned agriculture business create a succession plan involving a generation-skipping trust. We could structure the trust to transfer assets tax-efficiently to grandchildren while ensuring the business remained under family control.

Succession Planning Services From The Whitlock Co.

The Whitlock Co. has helped many business owners accomplish their goals through a viable succession plan that helps ease them into retirement.

Contact The Whitlock Co. to request a consultation and see what we can do for you.