Business Succession, Transition and the Next Step
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Few occasions are as dramatic as changing your profession or selling your business. Here’s what to consider as you approach this crucial turning point.

Call it professional wanderlust—it keeps you looking for new challenges and horizons, no matter what you’ve already achieved. Whether you’re in a business you’ve built or a career you’ve loved that now feels a bit confining, maybe it’s time to try something new.

Taking the plunge into a new venture, while exhilarating, often comes with a host of complex questions. How will my spouse and family feel about the change? How will our lifestyle be affected? What if things don’t work out? Can I make the change without jeopardizing our financial future?

Addressing these questions will help you make the right choice about when and how to begin the next chapter in your life.

First, ask why

“It comes down to understanding what is driving you,” says Bryan Koepp, Wealth Strategist for Regions Private Wealth Management. “This is a time to consider your passions and your goals.” While every business or career has its moments when you want to escape, it is when your passions truly lie elsewhere that a change may be in order.

Change necessarily entails risk, so you need to consider what trade-offs you’d accept in order to achieve a new goal, Koepp says. “Think about what your current lifestyle is, what your expectations are and how you define retirement—if you plan to retire at all.” Though you’ve worked hard your whole career, are you prepared for the extraordinary sacrifices of, say, jumping from an executive job to an entrepreneurial venture? “That can be a 24/7, 365-day-a-year commitment,” he adds. “So be sure you truly have the passion to take that on.”

Your company, your future

If the transition involves leaving a business you’ve built, the best way to ensure a move that benefits you, your family and the business itself is to start having conversations years ahead of when you plan to leave.

“The first question is, what do you want to have happen to the business?” says Dennis Tygart, Wealth Strategist for Regions Private Wealth Management. For example, will you sell the business to an outside buyer or keep it in the family?

Keeping a business within the family carries undeniable appeal. But those transitions can be complex, involving not just your own dreams, but those of your loved ones. If one child manages the company while another teaches high school, you may want to design a compensation and ownership structure that rewards the manager’s hard work for the company, while also ensuring a legacy and partial ownership for the teacher. You’ll also want to transfer the company in a tax-efficient way that provides money for your own retirement or new venture, while providing the liquidity that the company will need to operate.

Regardless, communication is essential, Tygart says. “Do you know if your children want to be in the business?” He recalls the owner of a small, profitable manufacturing company, whose plans rested on the assumption that his adult son, who worked there, would take over. But when they had a frank conversation, the son revealed he wanted to stay through his father’s transition, then move on.

Too often, though, families don’t have these conversations until the very last moment, often resulting in bitter feelings and a hasty, ill-conceived sale. “You may be forced to sell the business for far less than it’s worth,” Tygart says. Fortunately, in the case of the manufacturing company, the owner had years to arrange an orderly sale to a competitor, at an attractive price.

If you do decide to sell the business, finding an outside buyer may be the most straightforward option to support whatever you plan to do next.

But only 20% of companies that go on the market find a buyer, says Judi Cunningham, a family enterprise consultant at the TELOS Group and visiting scholar at Kennesaw State University in Georgia. She says owners often overlook how much of their company’s value relies on their own skills, knowledge and relationships.

“The owners often are the company,” she says, “and potential buyers may have little interest in a business whose central player is leaving.” To enhance a potential sale price, owners can give key employees more responsibility and let them form independent relationships with customers.

Switching careers or just changing gears

Not everyone is leaving a family business, or one they built from the ground up. A transition may involve leaving a comfortable and lucrative career to try something new. Lifetime employees may want to give entrepreneurship a try. Or a doctor in a large practice may want to hang out their own shingle and go independent. Just as common is someone who leaves a career to pursue food as a recreational passion.

“A good place to start is with a financial feasibility study,” Koepp says. The specific components of that study will depend on the nature of your plans. “Start by creating an inventory of assets you have and determining what you’ll be willing to put on the line,” Koepp suggests. Selling stock or tapping a portion of a family inheritance could help provide the financing you need.

A riskier—and potentially detrimental—choice might involve borrowing against your 401(k) plan, he adds. “The cost of repaying that money, including the interest rate and the tax consequences, could be significant,” Koepp says. Dipping into your 401(k) could potentially damage your retirement plans. Your Regions Private Wealth team can help you explore other options, such as seeking credit or raising capital from outside investors.

A focus on income

As you move into a new career or venture, make sure you have enough income to support you through a slow period, Koepp says. He recalls one professional who went out on his own after many years with a large corporation.

“About a year before he left, he built a formal business plan. He came up with a company name and hired an attorney to begin the incorporation process.” Though building his private practice took time, that planning paid off. Six years later, despite significantly longer workdays, he’s found the sense of freedom and self-determination he coveted, Koepp says.

If you’re transitioning into a career where your salary is likely to be much lower from here on, “look carefully at your existing resources,” Tygart suggests, to determine what lifestyle you’ll be able to maintain and what adjustments you might need to make.

Protecting your legacy

Making such a dramatic change can be all-consuming, but you shouldn’t lose track of longer-term considerations, Tygart says. “What do you want to have left over for your family or the charities you care about?”

If you hope to pass down a business or other large assets to the next generation, how can you do it without triggering a sizeable estate-tax bill? Could charitable trusts provide the income you need now, while leaving a generous donation to philanthropies when you’re gone?

As your life and goals continue to evolve, “these are things you’re going to want to monitor carefully and re-evaluate in the months and years ahead,” Koepp says, noting that a Regions Wealth Advisor can help you assemble a team of specialists, including a Wealth Strategist, to advise and guide you on the various financial, tax, estate and legal issues surrounding your transition. “When you get three or four experts together, they’re going to anticipate your needs and think of things that may not have occurred to you. Their main goal is to help make your transition successful.”

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This information is provided for educational and general marketing purposes only and should not be construed as a recommendation or suggestion as to the advisability of acquiring, holding or disposing of a particular investment, nor should it be construed as a suggestion or indication that the particular investment or investment course of action described herein is appropriate for any specific retirement investor. In providing this communication, Regions is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity.