Ready for Your Exit? Start Your Succession Planning with a Few Simple Questions

by Jay Silverstein, Partner, Moss Adams LLP

Succession planning continues to be a buzzword as baby boomers transition their businesses and wealth to the next generation.

These questions can help you determine your exit readiness and jump-start your planning.

I’m undecided about selling my winery or vineyard versus transitioning it to family members.

• How much longer will I run my winery or vineyard? What are my goals and objectives for the business once I’m no longer running it? Understanding how important the maintenance of your legacy is will help determine which strategies align with your business goals and objectives.
• What are my postretirement goals and objectives? And how much cash flow will I need and where will it come from? Understanding when you want to retire and your personal needs both pre- and postretirement will help narrow your alternatives.
• What are my goals and objectives for my children? Understand how you’d like to provide for your children and when you would like to do so.

I’ve decided to sell my winery at some point in the future.

• Have I done sell-side due diligence? Performing your own diligence prior to going through the sale process allows you to find the skeletons in the closet and either rectify problems or respond to issues. This could result in a higher purchase price and a better chance of closing the transaction.
• Do I know what a sale at full value will mean to me after fees, taxes, and debts? Understanding the estimated net cash you might receive well in advance of a transaction gives you time to implement advantageous tax planning strategies that may not be available once a letter of intent is delivered.

I’ve decided to transition my winery or vineyard to some or all of my children.

• Are my children interested in or capable of running the business? Give them time to develop the skills required to manage the business, if needed.
• How much cash flow will I have to fund my retirement, and where will it come from? Cash flow from the business for an extended period of time for retirement can lead to conflict between the older and younger generations, which may affect the value of the winery or vineyard. Minimize these conflicts with time and planning.
• Does it make sense to transfer some or all of the ownership during my lifetime? The need to make lifetime gifts has been somewhat reduced now that the amount a husband and wife can leave to their children free of estate tax has increased to more than $10 million. However, for estates larger than this threshold, lifetime gifts continue to help reduce future estate taxes.

I want to be prepared for the unexpected.

• What will happen to my assets if I, my spouse, or both of us die unexpectedly? Understand who will own the business in the event of an unexpected death.
• Are the individuals who will succeed me capable of managing and preserving the value of my business? If not, are there funds available to hire competent management?
• Will my current estate plan lead to conflicts between my heirs? Proactively address potential conflicts.
• Will estate tax be due upon my death? Do you know what your exposure to estate tax will be and where the funds will come from to pay those taxes? Certain methods allow you to borrow the money to pay estate taxes or pay them in installments.

Your CPA and other advisors can help explain and analyze your options, then work to implement a strategy. Run through these questions to begin ascertaining your exit readiness. If there are questions you can’t answer yet, don’t worry: You’ve given yourself a great place to start.