An Owner’s Guide to Business Succession Planning

An Owner's Guide to

Business Succession Planning

2nd Edition The Ohio Employee Ownership Center

An Owner's Guide to Business Succession Planning is a basic roadmap to assist owners of small and medium-sized business as they begin to plan for ownership and management succession. Inside you will find:

- A simple six-step process that will help business owners plan for succession. The process is designed to insure that it is the owner's goals that shape succession planning tools like insurance and trusts, not the other way around.

-An overview of the more common strategies and tools from which you may select to implement your succession plan

The book also includes resources for your own planning, suggested readings, worksheets to help you through the process, and a succession planning video on an enclosed dvd.

ISBN 978-0-933522-26-8

Ohio Employee Ownership Center

Kent State University

An Owner's Guide to

Business Succession Planning

2nd Edition

Stephen Clifford & The Staff of the Ohio Employee Ownership Center

Ohio Employee Ownership Center Kent State University Kent, Ohio

? Ohio Employee Ownership Center of Kent State University, 1996, 1999, 2008.

No part of this manual may be reproduced in any way without the prior written consent of Kent State University's Ohio Employee Ownership Center.

Design and layout by Chris Cooper.

Printed by Kent Popular Press for the Ohio Employee Ownership Center. ISBN 978-0-933522-26-8 (paper).

Distributed by the Ohio Employee Ownership Center, 113 McGilvrey Hall, Kent State University, Kent, Ohio, 44242. Telephone: 330-672-3028. Fax: 330-672-4063. Email: oeoc@kent.edu. Bulk order rates available.

This manual for business succession planning has been prepared by the Ohio Employee Ownership Center (OEOC) with the support of The George Gund Foundation and The Cleveland Foundation as a part of the Cleveland area succession planning program. This has been a job retention partnership between the Greater Cleveland Growth Association and its Council of Small Enterprises and the Ohio Employee Ownership Center of Kent State University. The preparation and publication of the 2nd edition was supported in part by a grant from the Ohio Department of Job and Family Services to expand the OEOC's business ownership succession planning program.

The Ohio Employee Ownership Center of Kent State University is a non-profit, information, outreach, technical assistance, training, and research organization that supports the development of employee ownership in Ohio. The OEOC is supported by the Ohio Department of Development's Office of Labor-Management Cooperation and by the Ohio Department of Job and Family Services.

Visit the OEOC's web site at .

Contents

Introduction

5

Introduction to 2nd Edition

6

1.Why Plan for Succession?

7

2.The Succession Planning Process: An outline

11

Step 1: Goal Setting - The Business Owner's Goals

13

Step 2: Goal Setting - Other Stakeholders' Goals

17

Step 3: Management Succession

20

Step 4: A Best Case Scenario

22

Step 5: Explore Options

24

Step 6: Implement the Plan

26

Doing Succession Planning: An Example

29

3. Strategies and Tools in Succession Planning

33

1: Valuation

33

2: Keeping It in the Family

35

3: Buy-Sell Agreements

36

4: Gifting of Shares

39

5: Trusts

40

6: Management Buyout

42

7: Sale to Your Employees

43

8: Sale to an Outsider

49

9: Liquidation of the Business

50

4. Additional Resources

53

5: Worksheets 1: Identify Your Goals 2: Define Your Current Income 3: Define Your Dependence on the Business for Future Income 4: Identify Needs and Goals of Other Stakeholders 5: Management Succession Planning 6: "Best Case Scenario" 7: Design a United Set of Goals for Your "Best Case Scenario" 8: Estimate of Federal Estate Taxes 9: Estimate of State of Ohio Estate Taxes

55 55 56 57 58 59 60 61 62 63

What's Included with This Book

64

- Current tax information

- DVD with "Business Succession Planning" video

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