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Take 5: Five Steps to Succession Planning

by Samantha Melamed
Business owners often put in long hours and make financial sacrifices to build their companies. That, says Amy Sonstein, CPA/PFS, principal at Cherry Hill’s Sonstein Consulting Services LLC and Sonstein Financial Group, is why solid succession planning is so vital. “Once a business is flourishing, they really need to protect it, to ensure that their dream is fulfilled and will provide for them in their retirement,” she says. Fail to plan ahead, she says, “and you can end up with some pretty eye-opening surprises along the way.”

1. Begin with the end in mind. “You need to have at least a game plan for exit from the beginning,” Sonstein says. “That changes how you build the organization. If you want to build a business where eventually your children can take over, then you want to plan the business so it’s not just about you.” The same goes for a sale to an outside party. You need to own “a business and not just a job. If all your relationships derive just from the business owner, then the business will be worth less.”

2. Invest in your business. To ensure you have a business—not a job—to sell, you’ll need to hire key talent and delegate accordingly. “The human capital really is the most important asset,” she notes. (And having that support will help you achieve better work-life balance, too!)

3. Value your business accurately. A CPA and a business broker will be key assets in helping you value your business and identify buyers. Be prepared to listen to hard numbers, she says, as sellers’ unrealistic expectations have stymied many a potential sale.

4. Identify potential successors. This could include the business owner’s children, key managers or partners. Buy-sell agreements, says Sonstein, are powerful tools that can allow business owners to retain a stake in their business on behalf of their children—or, alternatively, require a partner to buy out co-owners in the event that one of them is disabled or deceased. What’s important, says Sonstein, is “to periodically review any buy-sell agreements and take into consideration the estate-planning aspects of what you really want.” As well, she notes, “Consider whether the successor will have the financial capability of buying you out.” Insurance policies including life insurance, key-person life insurance and disability buyout insurance can offer peace of mind. Employee Stock Option Plans (ESOP) are another possibility, allowing employees to buy into a company over time.

5. Balance business and personal financial planning. Business owners may think of their business and personal wealth as separate, says Sonstein. In fact, “Your business is simply one asset on your balance sheet, but the most important one.” Maintaining cash flow across both arenas—possibly via disability and life insurance—is key. “If you’re forced to sell under pressure,” Sonstein notes, “that’s when your business ends up going up under a fire sale and you get the minimum value. So, personal planning is just as important as business succession planning.” For more tips, visit

Published (and copyrighted) in South Jersey Biz, Volume 1, Issue 7 (July, 2011).
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