How to create financial independence through proactive succession planning

Greg Chiampou, Director of Business Advisory Services, Contango

After toiling for years to build a successful enterprise, business owners have earned the right to leave on their terms and retire. However, nearly half of owners fail to achieve their timing or financial goals because they focus on day-to-day operating challenges instead of creating viable exit strategies.
“Procrastinators usually end up dying with their boots on, when they could be enjoying the fruits of their labor by planning ahead and orchestrating a seamless transition,” says Greg Chiampou, director of Business Advisory Services for Contango Capital Advisors, which operates as CB&T Wealth Management in California.
Smart Business spoke with Chiampou about the process of creating a proactive exit strategy.

When should owners initiate the planning process and who should be involved?

Ideally, owners should begin to plan five to seven years before they want to leave because it takes that long to stage for an ownership change. It also may take up to three to five years to establish a complementary estate plan. Planning ahead gives owners time to groom successors or implement structural changes that enhance a company’s value and maximize sale or transfer proceeds by reducing tax liabilities. Assemble a transition planning team that includes a certified exit planner, CPA and attorney, who may get support from an insurance adviser, business appraiser and financial planner.

Why is goal setting paramount and what should the goals address?

The owner’s goals serve as the plan’s foundation so the owner must decide when he or she wants to leave, who will take over the business and how much money he or she needs to support his or her lifestyle. Then, the planning team can flesh out the details and assess the feasibility of the owner’s objectives by using models to test the plan’s elements. For example, testing may show an owner will have to sell to a third party instead of transitioning ownership to children or employees in order to derive enough proceeds to generate an annual income of $500,000.

Who should perform the valuation and cash flow projections?

Since the business is usually the owner’s largest asset and its value is a critical element of the strategy, owners need an accurate, objective appraisal. Engaging a certified appraiser or valuation specialist doesn’t have to be expensive, and the peace of mind generally is worth the investment. Verify business and personal cash flow estimates by asking a CFP to review the accuracy of the financial assumptions.

How can business owners enhance their company’s value before a sale or transfer?

Tactics that can boost a company’s value include:

  • Mitigating concentrated risk: Expose concentration risks such as a limited customer base, suppliers or products by giving owners the opportunity to secure long-term sales or supplier contracts, or increase vendors and product offerings before a sale.
  • Separating assets: Strategically transfer ownership of major assets like a warehouse, office complex or franchise agreement to a separate LLC, which can boost overall value.
  • Conducting audits: Identify and rectify financial discrepancies, environmental hazards or legal vulnerabilities by auditing your finances, property and legal profile.
  • Documenting operating procedures and retaining critical talent: Confirm continuity with organizational charts, documented procedures and secure key players. Buyers won’t pay full price if critical operating procedures, employees and institutional know-how could depart with the owner.
  • Staging: Prepare to tell prospective buyers how sales growth and earnings can be maintained and possibly expanded. Ensure your office or production facilities look like they deserve the asking price. While purchasing new equipment or furniture can boost a company’s image and value, don’t take on significant new debt ahead of a sale.

How can owners minimize the tax liabilities resulting from a sale or transfer?

Aside from the actual purchase price, taxes have the biggest impact on the proceeds from a business sale or transfer. Ask an exit adviser and CPA to review your strategy and suggest ways to reduce or eliminate capital gains and estate taxes. For instance, converting a C-corp to a S-corp can eliminate double taxation on the sale of business assets, and estate taxes can possibly be eliminated by gradually gifting shares to your children or transferring ownership to a family limited partnership or limited liability company. In fact, highly appreciated assets can be converted into a lifetime income without paying capital gains tax when the asset is sold by setting up a charitable remainder trust.

What should owners consider when developing a contingency plan?

Even the best succession plans can be thwarted by the defection of key employees or customers, the sudden death of a partner, an unanticipated cash shortage or a scion’s desire for a different career. That’s why every organization needs a contingency plan that provides solutions to game-changing problems and events. Examples include buy-sell agreements that govern should an owner die or decide to leave, employee-retention bonuses backed by insurance and a mentoring program for successors. Given these tools and a little time, a team of skilled advisers can ensure that business owners exit smoothly.

Wealth management services are offered through Contango Capital Advisors, Inc. (Contango), which operates as CB&T Wealth Management in California. Contango is a registered investment adviser, a nonbank affiliate of California Bank & Trust and a nonbank subsidiary of Zions Bancorporation. Some representatives of CB&T Wealth Management are also registered representatives of Zions Direct, which is a member of FINRA/SIPC and a nonbank subsidiary of Zions Bank. Employees of Contango are shared employees of Western National Trust Company (WNTC), a subsidiary of Zions Bank and an affiliate of Contango.

Investment products and services are not insured by the FDIC or any federal or state governmental agency, are not deposits or other obligations of, or guaranteed by, California Bank & Trust, Zions Bancorporation or its affiliates, and may be subject to investment risks, including the possible loss of principal value or amount invested.

Greg Chiampou is director of Business Advisory Services for Contango Capital Advisors. Reach him at [email protected] Reach California Bank & Trust at

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