PNC Wealth Management recently
released its fourth annual Wealth and
Values Survey. This year’s survey placed special emphasis on the attitudes
and concerns of business owners.
Smart Business spoke with Jonathan
Lander, a senior wealth planner and vice
president with PNC Wealth Management,
about the survey and the importance of
business succession planning.
What did PNC’s Wealth and Values Survey
find out about business owners, and how
does it relate to succession planning?
The survey found that business owners
really love what they do and that a great
number of them intend to work beyond age
70. Yet the same attitudes that make the
business owner so successful leave the business owner woefully unprepared to successfully transition the business when he or
she can no longer be involved.
The survey found that 77 percent of business owners had made a will, but only 33
percent had a business succession plan. The
survey also found that business owners felt
less confident about having sufficient assets
to retire with a completely secure financial
What is a business succession plan?
A business succession plan is a mechanism for disposing of a business owner’s
business interest following a major life
event, such as retirement, disability or
death. The plan’s overall goal is the transfer
of the owner’s business interest without
damaging the business’s operations, impairing the financial security of the owner’s family or paying too much tax.
A business succession plan is usually
found in a number of different places. One
place may be the business owner’s will.
However, a will, because it speaks at death,
can only deal with a portion of the plan.
Other documents that may contain portions
of the plan are buy-sell agreements, shareholders’ agreements, partnership and operating agreements, and trusts.
Remember, the succession plan can take
affect during a number of major life events.
Death is only one such event.
Why is a business succession plan so important?
The reasons are too numerous to name
briefly, but think about some of the consequences that could happen to a business or
the business owner’s family without a plan.
For example, a proper plan can prevent a
deceased owner’s surviving spouse, who
knows nothing about the business, from
walking into the office after the funeral and
asking, ‘Where’s my desk?’ Or, without a plan,
how will a retiring owner liquidate his or her
ownership interest for the benefit of the
owner’s family without having to rely on
the cash flow of a business in which he or she
is no longer involved? On the other hand,
where will the business get that cash without
Even in a family-owned business, not planning for succession could have dire consequences. Often, there are children working in
the business and children not working in the
business. Imagine a business owner with
three children, one in the business and two
not in the business, who leaves the business
equally to the three children. The two children not in the business can now vote their
brother or sister out of a job. The flip side of
this involves treating all children fairly. If the owner leaves the entire business to the one
child who works in the business, what will be
left for the other children to inherit?
These are just a few very typical and unfortunate examples of bad things that can happen without a business succession plan.
Without a plan, the business could fail or the
owner’s family could lose the financial security that it needs, even with the owner having
devoted a lifetime of work to the business.
What should the business owner do?
Early planning is an important key to a successful transition. Preparing a succession
plan while the key players the business
owner’s partners and family are healthy
and active prevents having to think about the
problems of succession at difficult times,
such as when a family is grieving over a lost
spouse or parent. Transitioning ownership
early and over time may also save large
amounts of estate tax. Planning early to have
funds available to buy out a retiring owner
can help ensure that the retiring owner’s family is financially secure and the business is
not saddled with an ongoing obligation.
Consult an expert today. It is never too
early to plan and it is crucial not to be too
JONATHAN LANDER is a senior wealth planner and vice president with PNC Wealth Management. Reach him at (215) 489-2152 or