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Ironstone welcomes guest contributor, Scott D. Calhoun. Scott serves as Ironstone’s Legal Counsel and holds more than 25 years’ experience in corporate law. Scott advises clients on a full range of business matters. 
Once you have decided to begin long-term planning for a successful succession of your business, you will need to make sure your plan is properly documented so that it will accomplish your goals.  This article concludes our series on succession planning.  Part I briefly outlined succession strategies and introduced you to the process.  Part II provided a more in-depth review of a number of key factors.  In Part III, we provide some insight into the details of properly implementing the successful succession plan from the legal perspective.

As we discussed in our earlier articles, formulating a proper succession plan starts with putting together a good team of advisors.  At a minimum your team should include your attorney and CPA, and you might consider adding an outside financial consultant to the team.   Think of your team as a coaching staff putting together a game plan.  Once all the coaches have met and hashed out various ideas, a master plan is put together.  As game day approaches, steps are taken so that the detailed game plan can be implemented.  Among those steps is putting your legal affairs in order, including:

  • Update (or make plans to update) your will or other testamentary documents
  • Make sure your corporate minute book is up to date and complete – including stockholder records and minutes
  • Confirm that all your corporate registrations and business licenses are current
  • Put in place all agreements with current employees that are necessary to preserve the value of your business – non-disclosure/non-solicitation agreements, existing shareholder buy-sell agreements, stock option or other equity participation plans


If your plan calls for an INTERNAL succession (an existing partner or employee, or a targeted successor candidate, or a family member), several different arrangements could be used:

  • Transfer through existing buy-sell agreement
  • Establishment of stock option or other equity participation and transfer arrangement
  • Transfer through gifting program or limited partnership (especially useful with family members)

Each of these structures produces its own legal challenges and requires that specific issues be addressed. With respect to buy-sell agreements, you will need to focus on:

  • Triggers – buy-sell agreements can provide for the purchase and sale of stock in many circumstances other than death, including disability, separation or retirement, divorce, or even upon achieving certain performance goals
  • Valuation – how the company is valued at the time of the buy-sell is critical, and the methods of determining value are quite varied.  We strongly encourage you to decide on an appropriate valuation methodology at the time of putting the buy-sell agreement in place
  • Funding – perhaps the most important issue, how the buy-sell is funded can be the difference between a successful succession or the collapse of the business

If you are implementing a stock option or equity participation (or phantom stock) plan:

  • Appropriate grant percentages and formulas – the goal of these plans is to provide incentive for performance and also “skin in the game.”  Careful thought is required to ensure that these incentives are appropriate but not excessive
  • Triggers for payout – when will the stock be awarded or the compensation paid?  On sale of the business?  Other restructuring?  These are questions that need to be answered
  • Amendment and correction – these plans need to have flexibility, so the original document should allow for amendment within reasonable parameters

For limited partnership arrangements (can also use LLC) to transition to family members:

  • Control – this is a critical issue for first generation business owners.  The key point is to determine how to use this method of succession and maintain control until you are ready for the transition to be finalized.  This requires some care in planning and drafting
  • Gifting program and valuation – using valuation discounts and gifting of interests allows the first generation owner to leverage the gifts and maintain control
  • Commitment of family member – this goes back to the issues discussed in our earlier articles emphasizing the importance of selecting the proper persons to take over the business.  Make sure your chosen successor is in it for the long haul

If your plan calls for an EXTERNAL succession (sale to strategic partner, wealth management firm, or purely outside investor):

  • Due diligence – during the negotiation process, you will be asked to open your records for the buyer to conduct its due diligence.  As a seller, you should do the same to ensure that your buyer is who has been represented to you and that the buyer will be able to successfully complete the acquisition
  • Valuation and payment terms – these will be key issues in the negotiation process.  An important point to remember is that your notion of what your business is worth will almost never be the same as a buyer’s notion of what the business is worth.  Talk to your advisors about expectations
  • Security for payments – you will want to make sure you will actually get paid the amount agreed to for purchase of the business.  Proper security for those payments is vital


Part of the succession transaction needs to be a clear understanding of what your future role with the business will be.  In this regard, you will need to mindful of several issues:

  • Consulting or employment arrangements – if the deal calls for you to stay on in some sort of consulting or ongoing management role, your exact responsibilities need to be clarified and your compensation specified.  DO NOT allow yourself to believe that just because negotiations went smoothly and professionally, you will be able to “take it as it comes.”  Document everything.  If there is strong trust, all will go smoothly anyway
  • Non-compete agreements – you may be asked to sign a non-compete agreement.  This may not be a big deal if you are definitely retiring, but if you need some flexibility, you need to pay careful attention to these terms
  • “Earn-outs” – these are a popular means to keep initial purchase prices low.  If your deal includes earn-outs, make sure you are satisfied with the upfront and guaranteed money you will receive.  You should NOT count on getting any more
  • Taking the business back – this issue relates to making sure the purchase price payments are properly secured.  If the buyer cannot make the payments, you will want to have the ability to take the business back.  But be aware – it may not be worth much if these circumstances occur


In our previous articles, we have pointed out the need to prepare yourself for the transfer, take care in choosing your successor(s), and communicating with your clients and your employees.  These are all important factors in a successful succession plan.  So is communicating clearly with your team of advisors, especially your legal and accounting advisors.  The successful succession of your business and assuring that you receive proper value for your business depend on numerous factors, and the transaction will require careful paperwork.  There is no room for a handshake deal, or for whispered “back-room” arrangements with the potential successor.  These transactions do not have to be overly complex, but you need to make sure your advisors know everything that is important to you and then you need to trust your advisors to implement your plan successfully.

Using this approach, IRONSTONE can help you PASS THE TORCH effectively!

What areas of your succession plan need to be addressed? Let us know how prepared you                                                                            are for transfer by leaving us a comment or ask questions here!

Download The Entire Succession Planning Series

Download Ironstone’s Research White Paper

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PASSING THE TORCH – PART II Your Successful Succession Strategy  

Advisors specialize in helping clients prepare for life events such as retirement, and counsel them on the prerequisites for reaching their goals.  Having said that, why don’t the 42% of advisors who are within two years of transitioning, have their own financial plan in place?*  Align your succession plan with the long-term strategy of your firm, and , it will become an integral part of your business practice.  Part I of Succession Planning,, briefly outlined the succession strategy; below is an in depth review of the key factors.


There are multiple ways of passing your practice to others.  The ideal time to coordinate your transition is 10 years; strategy options will decline the longer you wait to implement your succession plan.  There will most likely be changes and adjustments along the way regardless of your time frame and pre-planning; stay flexible in the execution of your plan.

  • Start early as you see your business value increase
  • Use a SWOT analysis to define the structure and goals of your practice by outlining the strengths, weaknesses, opportunities and threats
  • Use Ironstone’s Fundamental 4™ to shape your business, ideas and solutions
  • Identify the reputation and legacy you want your practice to establish
  • Identify key roles that require continuity and are essential to your firm’s success
  • Establish a short-term/emergency and long-term succession time-line; initial planning to closing the sale
  • Outline 10, 5, and 1-year milestones to achieve, as well as potential milestones following the transition

You will also want to identify the nature of the sale


  • Sell your ownership to one or more partner(s) of the practice
  • Sell your ownership to a junior partner who was hired specifically for succession
  • Transfer your practice to a relative


  • Sell your practice to a strategic partner in exchange for ownership in the larger firm
  • Sell your practice to a wealth management firm e.g. bank


Include your CPA and attorney in this process to council your decisions and efforts as you outline the formalities of the transfer.  Build a succession plan that incorporates events that occur in your practice.  Some areas of focus include:

  • Determine the value of your practice and cultivate these drivers of valuation:  Adequate time for succession, client retention, reliable earnings, normalized earnings and AUM/REV
  • Assess your client segmentations
  • Restructure your organization design if necessary
  • Review and prepare formal documents such as financial statements, business plan, marketing plan, etc.
  • Upgrade your technology platform
  • Hire potential successors or search for external buyers
  • Finalize legalities – non-disclosure/non-solicit agreements, negotiations, possible discounts on sales, corporate structure
  • Create equity participation plans for employees
  • Prepare for mergers, acquisitions, financing
  • Launch new market penetration initiatives
  • Organize transfer of assets


In order to transition from your practice you need to solidify a sense of purpose beyond the transition.  This will eliminate your fears and will sustain your emotional commitment to the transition.

  • Define your role in the practice after the transition– e.g. short-term advisor role, ambassador role that provides emotional connections to long-term relationships
  • Define your personal goals, beyond the practice, by developing interests and securing financial resources independent of your business


Communicate the changes to the entire team, as well as memorialize processes and systems that are repeatable and no longer require your supervision  This will create a seamless transition and increase the value of your practice.

  • Delegate your responsibilities to your entire team to reduce the burden on one or two people
  • Collaborate with your team and incorporate their contributions to secure their “buy-in” of the changes
  • Create and document processes, policies, procedures and systems to create confidence for your clients and future buyer(s)
  • Define and refine team roles, responsibilities and job descriptions


A common misconception is that a succession plan involves only finding a successor for the business owner; however, there is often more than just one role that requires continuity and is essential to the success and growth of your practice.  There is also much debate surrounding the topic of whether you should inform team members if they are in the talent pool for advancement to leadership positions.

In Ironstone’s research, we have found the answer to be quite clear…….Tell Them! This will not only motivate team members to aspire to be a part of the talent pool, it will safeguard you from prematurely losing your top performers to the competition.

  • Determine criteria for welcoming new leadership – e.g. leadership/management ability, cultural fit, shared firm vision
  • Assess personality types and preferences to understand your workforce potential and identify your high-potential employees
  • Be open to having multiple successors fill the shoes of a key role – e.g. changing from a single advisor to a board or committee


The research is shocking – only 26% of firms have processes in place to develop internal talent.** Defining and designing career paths within your business are essential to combat unnecessary employee turnover.  This process involves mentoring and coaching to prepare high-potential team members for advancement.

  • Continuous evaluation of your current talent will help you recruit and promote from within
  • Develop pools of talent who are at various stages of readiness for promotion or new assignments
  • Support learning through relevant work experiences and daily assignments
  • Identify and develop pools of talent for all critical areas in your organization, not just leadership


Preparing your clients for the transfer is critical.  You must create confidence for your clients with the new advisor(s) and that they believe their needs and interests are in good hands.  The key is to make your absence a farewell rather than a loss to the business to ensure clients will stay with you through your transition.

  • Develop deep relationships and a communication plan that reaches clients, stakeholders and business partners
  • Inform clients of the succession plan, introduce them to the successors, transfer the relationship
  • Communicate any changes in client account structure, point person, etc.
  • Encourage and ensure that all interaction gravitates to the new leadership before your transition is complete.


Your successors are at the heart of your achievement!  Groom your practice and invest in successors through realistic developmental expectations of high performing leaders.  At each interval of your plan and your transition, stay realistic and take time to make necessary modifications.  A refined process will secure the chances of exiting with a prosperous outcome for all parties involved.

Strategic business planning includes succession planning.  Creating value for your firm that you can later sell will require that you look at your core values, vision and mission.

Ironstone will assist you with each stage of succession planning and provide tactical approaches to strategic planning, operational and human capital fundamentals that are vital components of successful succession planning.

*2012 AdvisorOne, **2012 IN Adviser Solutions Succession Planning Study

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