June 1, 2013. Our client newsletter is available online. Among the many interesting articles in this month’s newsletter is one entitled, “Getting Started on a Succession Plan.” Many of our clients are established San Francisco businesses who have significant assets and as they age, come to us for succession and estate planning.

Life’s Realities in San Francisco and Succession Planning

As a successful business owner, you still may reach a point where life’s realities are at odds with your career. Your health might decline, making it more difficult to keep up the pace, or you may just be tired of working so hard and decide to step aside.

San Francisco Succession and Estate PlanningWhatever the reason, you probably plan to sell your business and use the proceeds to help finance your retirement. However, waiting until the last minute can be a trap. If you are eager to sell and move on with your life, you’ll be in a poor position to negotiate terms with prospective buyers. Your chances of selling your company for its full value will increase if you develop a succession plan, and such a plan will be more effective if you begin years before an anticipated sale. A viable succession plan has many moving parts, but one way to start is to get a reasonable idea of what your company is worth.

You may have heard that another company in your industry was sold for a certain price or that businesses in your industry sell for X times net operating income. Thus, you have an idea of what a buyer would pay for your company. Your expectations, though, may prove to be inaccurate. In most cases, buyers will look at your company as a unique collection of products, services, customers, and employees, and they will make an offer based on their estimate of future profitability. Consequently, you should have your company valued by a knowledgeable appraiser, ideally a few years before putting it up for sale.

Look for someone experienced in appraising companies in your industry. You’ll probably have to pay several thousands of dollars for such a valuation, but you’ll know what you reasonably can expect to receive, and you might get ideas about how you can make your company more attractive to bidders. Select a successor When you’re ready to sell, you can just put your company on the market or contact a business broker. With this approach, though, you may not know who’ll be taking over your company. Will the new owner antagonize long-term employees or customers?

Look for Relevant San Francisco Bay Area Buyers

If the deal calls for a buyout over time, will the new owner keep the company healthy enough to make the ongoing payments to your Such considerations may lead you to choose your successor as part of your succession plan. Your first thought might be a relative, assuming that person is capable and enthusiastic about taking over. Keeping your business in the family may not be possible, though. You may consider a current employee. Promoting from within can ensure that your successor already is familiar with your company’s staff, customers, and suppliers. If you don’t already have a relative or current employee in mind, you can hire someone to groom for an eventual buyout. Whatever path you choose, it is best to start planning early.

Small Business Succession Planning and Estate Planning

Beyond small business issues, many clients come to us with estate planning issues. If you have significant assets of any type whether in a small business or not, you need to consider your small business plan. We can help. For the rest of our June client newsletter, click here. If you have questions, email us or call 415.742.4249.

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About Safe Harbor LLP – a Professional CPA Firm in San Francisco

Safe Harbor LLP is a CPA firm that specializes in accounting and tax services for individuals and businesses throughout the San Francisco Bay Area and greater California. Safe Harbor CPAs helps both individuals and businesses with tax preparation, IRS audit defense, and audited financial statements. The firm prides itself on friendly yet professional service and utilizes state-of-the-art Internet technology to provide quality customer service.

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