5 Common Succession Planning Problems

5 Common Succession Planning Problems

Succession is inevitable in a business. When the time comes to start thinking about retiring and/or transferring ownership, it is essential to understand common issues related to the process. When a closely-held business owner is asked about their succession plan, it is often a topic that receives little thought, due to the amount of time consumed with day-to-day operations. Every business owner has an emotional and financial investment in their company and often times, is reliant on the proceeds from their investment to fund retirement. The earlier an owner can design a succession plan in their career, the smoother it will make the transition and maximize the financial rewards. To help clients, prospects, and others understand the common issues faced in succession planning, Smith Schafer has provided a comprehensive summary of the issues below.


For a majority of business owners, it can be hard to set a day to retire. It makes it even harder when the person’s current position is owning and operating a business they have built from the ground up. A significant reason to create a succession plan is to circumvent mixed emotions during the succession. 

Uncertainty by the owner raises the chance for risk to occur in the succession process. The owner may find themselves hesitant to develop a plan because it outlines the inevitable end to their role in a business. To eliminate fear and indecision later in the process, it is important to focus on developing a plan in a timely manner. 


Developing a timeline could be the largest problem a business owner may have when they approach succession planning. Preparing a business’s succession plan forces the owner to think about their own mortality and even business competency as they progress in life. It may be an uncomfortable conversation to have, but it will be key in determining the livelihood of a business when resignation, death, retirement or disability occurs. 

Recommendation: Become active in developing a succession planning. Think of the alternative, where there is nothing in place at all. If something happens to the owner or to another key person, the business structure is open to dissolve very quickly. Succession planning becomes a device to mitigate risk and provide foundation for the future. 


When thinking about a successor, not every business owner is fortunate enough to have a competent son or daughter that can easily fill a management role. If that option is not the case, here are steps to take when searching for a successor:  

  • Identify characteristics and skills – Many business owners try to look for a “me-type” of owner. This person often shares many qualities similar to that of the current owner. It is important to think of the characteristics and skills of a person as a whole. Find qualities that make a owner successful. This person may be different in many ways, but contains appropriate abilities to help continue business success. 
  • Promote from within – A successful business is rarely ran by one individual alone. Identify standouts in management and throughout the business that may have an interest in expanding their role in the business. There is a great benefit to having someone take over who understands how the business operates, the company’s culture and its keys to success. 
  • Transferring responsibilities – Once a successor is identified, it is essential to have a succession plan transferring different roles and decision making power. However, in our experience, owners tend to pass on certain responsibilities, while not giving up actual control. It is beneficial to adhere with the succession plan set in place and allow for a successor it flourish in their role.


Like any good business plan or budget, it is important to be realistic and set attainable expectations. Start by developing goals. These goals should create value for the business. Ensure every part of the succession plan lends itself to this goal. 

Identify benchmarks or a timeline for when things will occur. In many cases, this will be associated with the age the owner expects to retire. Without clear benchmarks, it is hard to know if a plan is on track or being executed effectively. Confirming the plan is being performed piece by piece, will make the transition easier.

Communicate the plan with management, family members or advisors. This makes it easier for an owner to be accountable for each step. An outside view of a succession plan may lend additional opinions and help ensure the plan is realistic.

Lastly, be active in the transition. When employees, management or family members see an owner pass on certain responsibilities or control in the business, it lets others know the succession plan is being taken seriously.  

Once succession planning is finished, it must be updated every few years. Changes in employees, industry or market conditions all contribute to plan revisions. Even if there are no major changes, there may still be improvement every time the succession plan is revisited. 


Part of developing a succession plan may be acquiring a business valuation. Some may think, if the actual succession is not for several years, there is no value in obtaining a valuation. Realistically, it may be difficult to make decisions regarding the succession plan without an understanding of the current value of the business. The value of a business does change over time, but a business valuation provides a benchmark for planning purposes. Having a business professionally valued creates a reliable number that can be communicated to potential buyers.

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Smith Schafer works with business owners, in multiple industries, to uncover the true value of their companies’ tangible and intangible assets. Whether you need help creating a succession plan or conducting a business valuation, our professionals can guide you. Click to contact Smith Schafer’s Valuation Services Group to schedule a free 30 minute consultation. We look forward to speaking with you!

Succession Planning Requires Smart Strategies

Succession Planning Requires Smart Strategies

Succession planning is important in any business, but it is sometimes overlooked in family-owned operations. This is a big mistake. There are numerous former family-run companies that no longer exist due to poor or no succession plan.

Some studies show that among family businesses, only about 30 percent succeed to the second generation and 10 percent into the third generation.

The plan needs to be well thought out and discussed with everyone affected. Do not just assume a son or daughter will want to carry on the family business. Even if your children say they will take over, they may not have the true desire required to continue a successful operation.

The “heir to the throne” also may not have the business skills to succeed after a parent (or aunt, uncle, etc.) turns over the reins.

Another question that needs to be settled in the case of multiple potential successors (for example, more than one child): What responsibilities will each person have upon succession? It is important the details be worked out early, because, in the case of an unexpected death or disability, succession might occur sooner than planned.

You also need to address the involvement of the next generation. In some situations, the retiring family elder has adult grandchildren — some who may already be working in the business. Beyond the discussion of the roles of younger family members, you will also need to outline the times for major transitions, barring unexpected illnesses or death.

You want to make sure that the future leaders of the business have the proper training. There are several different options. One is having younger family members work in several different areas of the business. Another is having aspiring family business leaders get some experience in another, non-family business to learn alternative ways of doing things.

The importance of preparing for succession cannot be overemphasized. Neither can the importance of transitioning the business in an orderly fashion.

Sometimes, as planned retirement nears, elder family members do not want to let go. This can cause resentment on both sides. Naturally, the elder family members want to see the business they built (or took over, if already a second-generation business), continue to succeed as it did under their leadership. They can be concerned that the firm won’t flourish without their direction.

At the same time, the younger family members may think they can bring the business to even greater success if the older relatives would just step aside. This is where a scheduled, gradual transition of management and leadership responsibilities from one generation to the next can help.

As they turn over the reins of the business, elder family members can be compensated through preferred stock in the corporation. They can also look to stay involved in business — if not directly — through participation in industry groups and associations.

Such actions recognize the contributions of retiring members and help them recoup their equity. Meanwhile, the new manager and active relatives can plan for the future. And once retiring family members are no longer immersed in the daily grind of running the business, they may be interested in pursuing non-business community activities, personal hobbies and travel that they never had time for before.

Consideration should be given to business and personal goals, as well as the plans of the next generation. Who has the most aptitude for leadership? Who wants to stay with the business?

Contact us today to learn how we can help you and your company or organization prepare for the next chapter personally, professionally and financially.

10 Reasons for a Business Valuation

10 Reasons for a Business Valuation

Most business owners are reactive when it comes to having their businesses valued. But there are many times it pays to be proactive. Some valuations are necessities, such as for determining the value of the business interest in an estate. Others are obtained for more elective reasons, but are helpful to business owners nevertheless and help business owners with planning strategies. 

It is a good idea to review these common valuation scenarios, so you can identify when it is time to obtain your own valuation. Below are 10 reasons to have your business or a business interest valued.


  • Business succession transactions may be accomplished by gifting the ownership to family. Gifting is most common with family successions.
  • The business may be sold to employees, third parties, or may be combined with some amount of gifting. This type of transfer of ownership will be based on the value determined when the business is valued on an as-is, on-going basis.
  • Businesses may be sold to a strategic buyer (someone in the industry). A transaction with a strategic buyer usually occurs at a value higher than the amount determined with for a traditional transfer to family, employees or an individual buyer with no other connections to the industry. The buyer may incorporate the revenue streams into their existing business and will be able to achieve increased profit and cash flow by consolidating specific overhead expenses. 
    Example: Two facilities may not be needed and common business functions, such as administrative may be consolidated and the costs may be eliminated. A specific Valuation engagement may be performed to determine an estimated value of the business if it is sold to a strategic buyer.


  • You might need a business valuation not only to file an estate tax return, but also to provide guidance to the personal representative to fulfill the terms of the decedent’s will.
  • As long as the federal (and some state) estate tax remains in place, it is likely that effecting a gift to minimize ultimate estate tax will require the valuation of a business or a business interest.


  • A valuation is typically performed when a company acquires another company, is targeted for an acquisition, reorganizes its capital structure, splits up or files for bankruptcy while in liquidation or reorganization.
  • A merger generally requires both parties to get a valuation, while in an acquisition, it may only be one party.
  • These valuations may create challenges, which require the valuation analyst to calculate cash equivalents for payment (i.e. stock versus cash).


  • A valuation may be necessary in order for a business to develop a buy/sell agreement. These agreements can serve tax or business purposes. If a sale will involve related parties, a valuation might be necessary to insure a proper value for estate and gift tax purposes. 
  • A buy/sell agreement allows an owner in a closely-held business to acquire the interest of another owner in the event another owner decides to retire, exit, or passes away.
  • These agreements many times include a designated price or formula to determine the price the remaining owners would pay to acquire the interest of the exiting owner.
  • This price or formula should be occasionally reviewed by a valuation analyst in order to keep up to date with the performance of the company over time.


  • Ownership disputes result from many different circumstances, most commonly including: disagreements between owners, disagreement with a merger or dissolution, or other related issues.
  • Many states allow businesses to merge, dissolve, or restructure without a unanimous ownership consent.  This may result in a dispute that requires a valuation as part of the settlement process.


  • In the event of a business transaction (i.e. merger, acquisition, sale, etc.), the purchaser and the seller need to properly record the sale.
  • Inconsistent and inappropriate allocation of the purchase price may result in an increased tax liability, and even penalties.
  • A valuation analyst will consider the differences in business goodwill over personal goodwill and the various state laws applying to these transactions and calculations.


  • When a private business owner gets divorced, a valuation may be required to divide the marital estate, whether by agreement of the parties or by a judge through a trial. Often both sides obtain separate valuations, but there is also a movement toward collaborative divorces in which the parties agree to hire a single valuation analyst.


  • Closely-held business owners will sometimes pursue a valuation in order to determine a value necessary to cover their business interest value if something were to happen to them. This value is then purchased as “key person insurance.”
  • In the event something happens, the insurance could payout value to the owner’s family to allow them to continue the owner’s role, or buy themselves out of the owner’s role. These rules are subject to buy/sell agreements and terms within the key person insurance policy.


  • Financial institutions and the SBA may require a business valuation in order to underwrite and approve a loan especially when the loan is to acquire a business or a business interest.
  • Typically, financial statements are presented at historical cost.  A valuation will provide the bank with fair market value amounts that can support a loan.

10.  ESOP

  • An employee stock-ownership plan (ESOP) is an employee benefit plan that invests in employer common stock. ESOPs provide capital, liquidity, and certain tax advantages to those private businesses whose owners do not wish to go public.
  • A valuation must be performed annually for an ESOP. This valuation determines the price per share for the beneficiaries of the ESOP plan. It is a very important valuation, because the ESOP trustees may be held personally liable if a beneficiary receives less than the fair market value of the stock.
  • This is required in order to comply with IRS and Department of Labor rules.

This is but a partial list of potential reasons to have your business valued. In each of these instances, it is important to have your business valued by a credential valuation professional. Smith Schafer works with business owners, in multiple industries, to uncover the true value of their companies’ tangible and intangible assets. Click to contact a Smith Schafer professional to schedule a free 30 minute consultation. We look forward to speaking with you!

Tax Implications when Accessing Retirement Accounts

Whether you recently left a job, are in the middle of a financial crunch, or you are beginning your retirement, you need to be aware of the income tax implications of withdrawing funds from your retirement savings account(s) for personal use. Having both taxable and tax-free retirement plan assets available from your retirement accounts is a prudent tax-planning method when taking retirement plan distributions for personal use. For example, In years where the income tax rates are higher, you may want to withdraw more retirement plan funds from your income tax-free alternatives to reduce your overall income tax exposure.  

Retirement accounts come in many forms. Some retirement accounts include:

  • Employer-sponsored Pensions and Profit Sharing Plans, including 401(k) and 403(b) plans
  • Individual Retirement Accounts (IRAs)
  • Life Insurance Policies

Distributions from each may have significant income tax consequences depending on the specific type of contributions to the retirement account  and the timing of the distribution.


Income Tax-deferred contributions are allowed in traditional, deductible IRAs and employer sponsored pension and profit sharing plans, including 401(k) and 403(b) accounts. Distributions paid directly to the account holder from income tax-deferred accounts, including the accumulated earnings on the account, generally are fully taxable in the year they are withdrawn for use and actually received by the account holder. Distributions taken from income tax-deferred accounts prior to age 59 ½ are generally subject to a 10% early withdrawal penalty. However, there are a few exceptions to this rule, which include distributions made to an age 55 or older employee after separation from employment, distributions attributable to a permanent disability, and distributions taken in a series of substantially equal periodic payments, similar to an annuity.

Note: There may be other exceptions that apply to your situation. Please contact your Smith Schafer professional for more information.


Tax-free alternatives in your retirement plan savings accounts may include ROTH 401(k) accounts and ROTH IRA accounts. ROTH accounts allow you to pay income taxes at the time the contributions are made, and the contributions and earnings grow and are tax-free upon distribution. Taxpayers using ROTH account options may face an increased income tax liability in the year the contributions are made, however, if these accounts are established early, they can develop into a significant tax-free source of income upon retirement.


Another retirement saving’s option is the use of whole life insurance policies to help fund your retirement financial needs. Whole life insurance policies build-up assets over a number of years. When you have a need for funds, you may borrow against the cash surrender value of the policy. The amounts withdrawn are income tax–free, as they are treated like a loan against the accumulated value of the whole life policy. The outstanding whole life policy loan will not need to be repaid, and will offset the value of the life insurance policy upon the taxpayer’s death, with any remaining proceeds passing on to the beneficiary.

Contact Us

Your financial future can be more secure with the help of a Smith Schafer. Because we understand your individual tax situation and changing state and federal estate tax laws, we can help you determine the appropriate immediate and long-term financial strategies. Then we point you to the right resources. Contact us today to learn tax saving strategies that best fit your situation.

Business Valuation & Succession Planning

Business Valuation & Succession Planning

How much is your business worth and what are your plans for the long run? These are questions every business owner will face at some point. Business owners invest many years of time, energy, and personal funds to build a business. Planning for your exit is often one of the hardest things a business owner must do. Contemplating the business you built or help to develop without you is complex, difficult and emotionally challenging. When succession planning is executed properly, it allows for the orderly transition of management while protecting the exiting owner professionally, emotionally and financially.

What should business owners do to prepare for business succession and how can they maximize the value of their business? 

  • The first step is determining a realistic value of the business. This is accomplished by having a valuation performed on an as-is, on-going basis of the business. Some owners may want to determine the annual value of the business for legal reasons, such as a buy/sell agreement, and others may want to be updated on an as-desired basis in order to keep track of the value of their estate.
  • The simplest and least expensive way to determine a value of the business is to engage a valuation expert to perform a Calculation of Value engagement. This calculates the value using the same general methodology of a more comprehensive Opinion of Value engagement, without the increased reporting requirements and therefore, without the increased fees for the service.
  • Another benefit of the Calculation of Value engagement is the professional’s assessment of the main drivers of value for the business. This may help the owner determine ways to increase the value of the business before they decide to transfer the ownership. The business owners may also use the information to help determine the best type of transaction for their economic needs.

Business Succession

  • Business succession transactions may be accomplished by gifting the ownership to family, key employees, or other individuals. Gifting is most common with family successions.
  • The business may be sold to employees, third parties, or may be combined with some amount of gifting. This type of transfer of ownership will be approximately the value determined when the business was valued as an as-is, on-going basis.
  • Businesses may be sold to a strategic buyer (someone already in the industry). A transaction with a strategic buyer usually occurs at a value higher than the amount determined with the traditional Calculation of Value engagement. The buyer may incorporate the revenue streams into their existing business and will be able to achieve increased profit and cash flow by consolidating specific overhead expenses. Example: Two facilities may not be needed and common business functions, such as administrative may be consolidated and the costs may be absorbed by the increased revenue. A specific Calculation of Value engagement may be performed to determine an estimated value of the business if it is sold to a strategic buyer.


Determining the value of your business and incorporating this information into your overall financial, retirement, and estate planning, will help you manage the wealth of your business. To help business owners through this process, Smith Schafer offers business valuation and succession planning services designed to help businesses create and execute a successful transition strategy.

Smith Schafer works with companies, in multiple industries, to uncover the true value of their companies’ tangible and intangible assets. Whether you need help creating a succession plan or conducting a business valuation, our professionals can guide you. Click to contact Smith Schafer’s Valuation Services Group to schedule a free 30 minute consultation. We look forward to speaking with you!

Transportation Industry: Retirement Plan Design Insights

Transportation Industry: Retirement Plan Design Insights

The transportation industry faces a unique set of challenges in today’s marketplace. Some of the specific challenges driving the industry today include:

  1. Concerns over the health and well-being of drivers
  2. Aging drivers and staffing shortages
  3. Employees not saving enough to meet their financial retirement needs

One way the transportation industry can turn these challenges into opportunities, is by offering a well-designed retirement plan savings program for drivers and all company employees. Retirement plan design is complex, requiring help from trusted professionals who understand the complexities, challenges, rewards and opportunities associated with effective retirement planning. Below are retirement plan design tips regarding each transportation industry trend.

1. Concerns over the Health & Well-being of Drivers

Drivers often face health issues, such as increased risk of motor vehicle and on-the-job accidents, exposure to loud noises and dangerous chemical emissions and sleep deprivation. Some retirement plan design tips to address these concerns include:

  • Ensure the disability provisions within the plan document offer a generous definition of what constitutes a “disability” in an effort to protect drivers who may become disabled.
  • Design the plan to allow for hardship distributions to cover such items as medical bills.
  • Allow disability wage payouts to be included in the definition of plan compensation.

2. Aging Drivers & Staffing Shortages

Staff shortages in the transportation industry are expected to worsen in coming years. The industry has already seen a shift in the average age of drivers, and the upward trend in driver ages is expected to continue to rise. Employer-sponsored retirement plans have become an important tool for attracting and retaining high-quality employees. Below are several retirement plan design opportunities encouraging young employees to join the workforce, while still supporting more experienced employees.

  • Offer plan provisions which allow generous, discretionary employer matching and profit sharing contributions in prosperous company years.
  • Adopt safe harbor plan provisions which guarantee generous, fully-vested employer contributions to employees while also allowing older, long-term employees to contribute larger amounts to the plan.
  • Provide catch-up contribution arrangements within the retirement program for employees age 50 and older to make additional plan contributions and offer employer matching contributions on catch-up contributions.

3. Employees Not Saving enough to meet their Financial Needs in Retirement

There is a growing concern among transportation company owners, who have a fiduciary responsibility to the companies’ retirement program, that employees are not saving enough for a comfortable, fulfilling retirement. A solid retirement plan program may include some of the following solutions to counteract this growing concern.

  • Establish an Automatic Contribution Arrangement (ACA) within the retirement plan, along with a provision for automatically increasing the contribution percentage each year to encourage more employees to invest and to continuously grow their investment commitment.
  • Develop an informative, educational program for all staff to ensure they have the best information available, which will allow them to feel more comfortable making investment decisions on their own behalf and will aid in increasing enrollment.
  • Educate employees, and specifically those who may otherwise avoid investing in the company’s retirement plan due to lack of investment understanding, through utilizing online access to educational webinars, administrative guides and easy-access websites. This will assist over-the-road drivers and all staff to access their retirement plan information from anywhere.

REAL LIFE EXAMPLE: Smith Schafer Client Case Study

Do not let industry challenges outweigh the goal of offering a well-designed retirement plan program for transportation industry owners and staff. Another effective retirement plan design tool is selecting the right type of retirement plan to meet your transportation company’s needs. There are several retirement plan types to select from including:

  • SIMPLE IRA Plan – Savings Incentive Match Plan
  • SEP Plan – Simplified Employee Pension Plan
  • 401(k) Profit Sharing Plan

These three types of retirement plans may be used to effectively design your retirement program. Some considerations when determining the right plan type for your transportation company include:

  1. Is your transportation company profitable each year or does the company have some unprofitable outcomes?
  2. How many employees does your company have?
  3. What are the goals for expanding your employee base over the next few years?
  4. How much flexibility do you want with regards to eligibility requirements, contributions and vesting?
  5. As a transportation company owner, how much would you like to save each year on your own behalf?

Each plan type may then be evaluated using these considerations to determine which retirement plan type best meets your transportation company’s needs. An example of how an evaluation may look:


A SIMPLE IRA plan allows employees to contribute a percentage of their salary each paycheck and to have their employer make a contribution on their behalf. Employers must either match employee contributions dollar for dollar, up to 3 percent of an employee’s wage or make a fixed contribution of two percent of pay for all eligible employees. If your transportation company is small, with a few employees, a SIMPLE IRA may be a good plan design choice because there are fewer employees for whom the transportation company owners would need to make a mandatory employer contribution. However, since the employer contributions are mandatory for a SIMPLE IRA plan, a transportation company who juggles between profitable and unprofitable years may want to avoid the SIMPLE IRA plan design.

SIMPLE IRA plans do not offer a lot of flexibility due to their mandatory employer contribution formulas and the requirement to vest all eligible employees 100 percent immediately. The contribution limits, as required by law, are also much lower with a SIMPLE IRA plan than with some other plan designs. Therefore, a transportation company owner who wants flexibility and wants to maximize their own contributions may not be interested in setting up a SIMPLE IRA plan.

LEARN MORE: Consider a SIMPLE IRA as a Retirement Plan Option


A SEP plan allows employers more flexibility with regards to employer contributions, which are not mandatory. Therefore, SEP plans may be more desirable to transportation company owners who desire a flexible, potentially less costly plan design and whose company has a tendency to juggle between profitable and unprofitable years. Also, SEP plans have higher contribution limits for owners to be able to contribute and allocate a higher percentage of employer contributions on their own behalf in years when company profitability is higher.  

SEP plans enjoy a lower start-up cost, but may require higher administrative fees in years when an employer contribution is remitted to the plan because SEP plans have compliance testing requirements in such years. Transportation company owners should take administrative costs into consideration as they make a decision on plan design. Another issue with SEP plans is employees are not allowed to contribute on their own behalf. The only contributions used to fund retirement under a SEP plan arrangement are the dollars the employer contributes. This may make SEP plans less attractive to potential, prospective employees and may not be an effective plan design choice for transportation companies intending to grow over the next few years by adding staff.

LEARN MORE: SEPs – A Quick & Easy Retirement Plan Option


401(k) profit sharing plans allow employees to contribute a portion of their own incomes toward their retirement. 401(k) profit sharing plan arrangements are potentially one of the most flexible plan designs because transportation company owners have numerous options related to eligibility, contributions and vesting. The 401(k) profit sharing plan can be designed in a manner allowing discretionary employer profit sharing contributions. This would be welcome to transportation company owners who realize they may not be profitable every single year going forward.

401(k) profit sharing plans may be attractive to transportation companies who have a large employee base or are planning to grow in number of employees in the future. They are also great recruiting tools for new employee prospects since the 401(k) model is one of the most widely known plan designs. The 401(k) profit sharing plan model may be designed to allow employers to maximize their own contribution and their portion of the employer contributions. This feature is very attractive to many transportation company owners. One drawback to the 401(k) profit sharing plan design model is the cost. 401(k) profit sharing plans often have higher annual administrative costs because of their compliance and reporting requirements. The compliance testing requirements usually require the transportation company owner to hire an outside Third Party Retirement Plan Administrator to assist with compliance and reporting requirements. The excessive cost in a 401(k) profit sharing plan model may make this plan arrangement less attractive to companies who are not always profitable.

With the right plan design, your transportation company retirement program can work effectively to support owners and staff in retirement. We can guide you through every facet of structuring and managing the right employee benefit plan program for your transportation company. Transportation has been a key practice area of ours since 1971. Smith Schafer has the experience and understanding of the transportation industry to make a lasting positive difference in your future success. Let’s start the conversation. Contact us today to schedule a free 30 minute consultation.

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