Cashing in: How to plan for business succession in a recovering economy

3 things to consider when planning for future retirement or sale of a business

Katharine Coakley

When it comes to retirement in the United States, nothing hurt business owners more than the financial crisis of 2008.

Retirement plans were shelved for an uncertain future, turning what was once attainable into something beyond reach. The opportunity to sell a business was nearly impossible. Many banks were not in a position to lend or expand. American business owners were fearful of losing their business, suffering from cutbacks or filing bankruptcy. Yet as we enter 2015, we are looking at a very different picture.

Across the board, businesses are more financially stable and banks are supported by stronger capital. Pre-recession, people were very willing to leverage themselves because credit was so easy. Now we’re seeing the opposite. Scarred by the effect of the economic crisis, people are concerned about having enough cash on hand and are not as willing to spend it or leverage their assets. As a result, banks have a significant number of deposits and compete to find ideal candidates for good, healthy loans. The result? Now, more than ever, is an ideal time for business succession planning.

But when it comes to planning for future retirement or sale of a business, there are three key things to consider:

Build out a plan – in advance.

The economy, in a lot of ways, dictates how decisions are made. We recommend clients start the planning process early, ideally three-to-four years in advance of the target retirement date. That realistic time frame will put you halfway through an economic cycle, which provides more flexibility to consider options and be ready when the time comes. We are approaching the mature stage of the economy right now and sometimes you just have to seize the moment. Those who wait to plan could miss an opportunity and end up in the next recession.

Assemble a professional team.

A key piece of the plan, of course, is the expertise behind the execution. Make sure to consider every angle to the sale. This requires the right professional team to guide you: a strong legal counsel, accountant, estate planning attorney and financial advisor. Surprisingly enough, we see small business owners without advisors all the time. It is critical to look at the transition of a business from all angles to find the best option. Are you passing your business on to a family member or potential competitor? How about selling to your employees through an employee stock ownership plan? There is never just one solution for any business, and having that core team to guide you will be critical to your success.

Seek a financial advisor during the entire sale.

Financial partners do more than ensure that the check clears. Financial advisors can play a key role in estate planning and provide clients with a lot of guidance leading up to the meeting with the attorney.

For example, take a married couple without children who own a business and are ready to retire. When planning for retirement, they may be more inclined to donate to charities than others with children or dependents. For them, it might make more sense to set up a charitable remainder trust, where they contribute shares of the company, before they sell it, and the remainder beneficiary of the trust is a nonprofit organization. This scenario is a win-win for everyone, as the couple has potentially saved millions of dollars in taxes, and now are able to provide more funds to the nonprofit. In the scenario of a family-owned business with a larger pool of potential successors, this transition structure looks very different. Both scenarios benefit from the expert and objective point of view that a professional advisor can provide.

As the economy continues on an upswing, business owners must be prepared to take advantage of the market when it is in their favor, not when it is against them. The best way to do that and ensure the most successful transition into retirement is to start succession planning early. While no one is certain what the future will look like, small business owners can prepare an effective succession plan that will result in benefits and advantages, regardless of what the future holds.

Katharine Coakley is the SVP, managing director of West Coast Trust/Columbia Bank Trust. She oversees Columbia’s trust and investment teams throughout the footprint in Washington, Oregon and Idaho. For more information about Columbia Bank, visit