Succession Planning: Just as Important for your Business as it is for you Personally

You may have an exit strategy, but it's your succession plan that will spell out the details of how your company will be led in the future and who will take control of the reins to lead the charge when you're gone. So why do so many business owners wait so long to form their succession plans? The answer may surprise you. On this edition of “Deal Talk,” host Jeff Allen welcomes Peter Brehm, business and tax attorney and owner of the Business Law Center in Bloomington, Minnesota, to discuss the advantages of a clearly laid-out succession plan, what the planning process involves and who benefits. This is a program your family and your company will thank you for tuning into!


Questions Answered For You

What a business owner wants to do in a perfect world is to control how they get out, when they get out of their business.

- Peter Brehm

Key Takeaways

  • What a business owner wants to do in a perfect world is to control how they get out of their business, when they get out, the fashion in which they get out, and who succeeds them.
  • Every business owner would benefit by having some level of involvement in a succession plan. If they have a partner or are involved in a corporation where they have partners or an LLC, a plan is vital.
  • The mistake that some business owners make is that they act as their own general contractor and hire lawyers, accountants and financial planners to complete pieces of the plan, without those parties communicating with each other.
  • An attorney will raise succession planning questions, discuss overarching issues that might come up, and help identify objectives and goals for the client.

Read Full Interview

Jeff: Welcome to Deal Talk. This is the online program built specifically for small business owners who want to sell their business now or in the future at the highest possible profit. And through our conversations with real world experts it's our mission to provide information and advice that you can really use to help you build your bottom line and improve your company's value. Deal Talk is brought to you by Morgan & Westfield, the nationwide leader in business sales and appraisals. Hello again, I'm Jeff Allen.

You've heard us talk about the importance of having a plan, particularly the need for that all important exit strategy, whether you're just starting out with your business or you're planning to retire in the next three to five years. Today, we're going to dive into the details a little bit on succession planning, why it's so important. And to do that I'm joined by an expert on the subject. Mr. Peter C. Brehm comes to us from the Business Law Center in Minneapolis. Mr. Brehm is an attorney and a certified valuation analyst with a Master of Law and Taxation. He's also an adjunct professor at William Mitchell College of Law. Peter Brehm, welcome to Deal Talk sir, good to have you.

Peter: Thanks Jeff, I'm glad to be here. 


Jeff: We're delighted to have you and really interested in getting into the subject here of succession planning. And I think a really great way to start with this is with the definition of succession planning, what it is and how it's different from the title or having that terminology exit strategy. How are those two things compare to it and exactly what it is?

Peter: A succession plan is really a road map for business owners to plan for how they're going to exit from their business. So an exit strategy is part of that. But it also includes things like estate planning and financial planning. And it really is a holistic approach to achieving the goal that a business owner has, not only for their business but for their life after the business.


Jeff: Just imagine it, if you're a business owner right now, and Peter I'm talking to the audience here. You have an opportunity to have all of the questions that you may not even know that you have right now answered, and you have everything planned out for that day when you retire. Imagine the headaches or the stress that you may not experience because you have the stuff essentially worked out ahead of time. And let's face it, there is a lot to think about I think, Peter Brehm, when you're a business owner and you've owned and operated a business for 25, 35, 50 years, whatever the case may be, everybody's different. And you're coming up to the end of your time and you're ready to hang it up, and you're ready to move on, there are just a tremendous amount of details to be worked out and things to be concerned about whether you're selling that business or whether you're passing it on to a family member. Things that you need to do before you leave, not the least of which is thinking about yourself, personally, what you're going to have to do, how you're going to have all of your affairs in order or that you need to have those affairs including a personal financial plan and estate planning, you talked about it and we're going into some of these things and in greater detail, I know, Peter. It really is tremendously important to have the wheels in motion here as we move along while we own our businesses and we start to plan for our sunset years. What are some of the benefits of having that succession plan versus the consequences of not having a plan in place?

Peter: The simplest answer for you Jeff is control. What a business owner wants to do in a perfect world is to control how they get out, when they get out of their business, can they control the fashion in which they get out business, who succeeds them? That's the best answer to the question, is that they have better control, not complete control but better control over what it looks like when they retire, when they decide that they want to transition to family members, when they decide that they want to sell to a third party. That plan is already in place for them. And it’s greater control over the not so pleasant things that happen with business owners. Business owners die, partners die, they get divorced. And that plan can address all of those things. And what you talked about which is really important is that there is a great deal of stress for not only business owners but for key employees, for partners, for family members. If they haven't planned for these potentialities, and when you have a plan in place I think that relieves a lot of stress, it keeps employees happy, it keeps your partners relatively happy. And your family members know exactly what's going to happen if you became disabled, if you were to die, if you were to retire. And I think that's far easier then for business owners to plan when they have that level of control.

A succession plan is really a road map for business owners to plan for how they're going to exit from their business. 

Jeff: It really is, and you know Peter we've talked to business owners on this program in the past and they've had different responses when we've asked them, “Tell us about the level of anxiety or the thoughts that you had when the whole process was underway with regard to selling your business.” Everybody had different answers and that could very well be and we didn't get into this with them that they had other things that were going on or other things that they were trying to work on that may have by the way had everything to do with their personal financial situations which were kind of on the side or happening in the background. And so what you're talking about is having something that will - they may not necessarily - a succession plan may not necessarily eliminate all complications but it can certainly mitigate or limit the complications and a lot of the minutiae that people have to go through and certainly deal with. So I think that what you bring up is very, very important. I guess my next question would be, Peter, is this something that is right for everybody? Having the succession plan, who are the business owners who are going to benefit most from a formal plan?

Peter: Really, every business owner would benefit by having some level of planning involved with the succession plan. They're not all going to need, for example you have a business that's worth $50,000 or $60,000. You're not going to need an in-depth a plan as a business that's worth $3, $4, $5 million and have liquid assets and many employees. So every business owner would benefit from it. I think anytime you have a partner or you're involved in a corporation where you have partners or an LLC, that a plan of some nature is really vital. Because you have to plan for the eventuality that one of your partners is going to become disabled or get divorced, or want to retire, and those time frames never seem to match-up quite well. But beyond that most small business owners that I deal with and that's primarily what I do. Seventy, eighty, to sometimes probably even 100 percent of the value of what they own is tied up in this business. And I think that the process of succession planning allows them to identify what that value really is by having a valuation done and then how to protect that value. So that when they retire they have something to retire with rather than just hoping that everything goes well in the year that they decide to retire or they decide to sell, and hope that they get the purchase price that they want.


Jeff: We're going to talk about all the necessary parties and the people involved in putting together a succession plan, Peter, coming up a little bit later in the show. But what I'd like to do is break things down in terms of the components, the factors that are involved that come into play, elements of a successful succession plan. Let's talk just a little bit about those. Give us a sketch of the different components involved.

Peter: If we're talking about what goes into a succession plan there's a number of pieces that can go in there and every business is going to be different, and have different goals and different needs, and I suspect we'll talk about that as we go along. But as a baseline a succession plan should address when the owner leaves, who decides how the owner leaves, and the mechanics for getting that owner out of the business. How do we get the shares from that owner back into the company or into whoever's going to buy the company from them? A succession plan should address what happens if there are partners as I just mentioned in the event that one partner gets divorced, disabled, can no longer work, or they just don't get along anymore. The plan should address how much value the owner will receive. Whether they protect the asset, whether they should take steps to maximize the value of the business by protecting their employee relationships, their vendor contracts, those kinds of things. So we plan to address those kinds of value drivers. It should address tax issues. What's the best way for the owner to exit and pay the least amount of tax. And then personal goals like legacy, ideas, or the desire to give money to charities, and address the financial needs for after the exit, so retirement planning, what kind of income they're going to have. All of those pieces kind of fit into this and into what I think would be a successful, complete succession plan. 

 But as a baseline a succession plan should address when the owner leaves, who decides how the owner leaves, and the mechanics for getting that owner out of the business.

Jeff: Is a succession plan, should it be regarded as a living type of plan that can be changed or should be reevaluated from time to time?

Peter: Absolutely. I think sometimes the client's get overly sensitive because lawyers tend to go back to them every year and say we need to revisit this. And at a minimum the value of the company should be looked at every year. Because if the value is going up dramatically we need to address that, if the underlying dynamics of the company have changed, key management has left, key employees have been identified, there's a whole host of things that will be going on in the operation of the company that really should be addressed at least annually, if not more regularly. It doesn't mean that the client has to sit down with a lawyer and keep doing plans over and over again, it's just more of a modification or updating of an existing plan, generally.


Jeff: Succession planning, what it entails and why you need to be prepared when you sell your business with Atty. Peter Brehm of Business Law Center in Minneapolis. My name is Jeff Allen, and Peter and I have a lot more to talk about when Deal Talk resumes in a moment.

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Jeff: Welcome back to Deal Talk, I'm Jeff Allen with my guest Peter Brehm, attorney and certified valuation analyst at Business Law Center. We're talking about succession planning, why it's important, who needs it, and all that it entails, because really I think at the end of the day so many of us are driven to succeed and to make our businesses be a success. From the time we wake up in the morning to the time we go to bed at night we are running our business, we're running it in our head. We're thinking about what it is that we have to do and so many of us work in our business particularly in the early stages as well as work on it. And so we're thinking about our business all the time but we're not thinking so far ahead as to what we need to prepare for when we come to that point in our lives that it's time to let our business go, it's time to sell it, it's time to retire and pay attention to other important things in our lives like our family for example, and really give them our fullest attention. And that's what succession planning is all about. That's what it's doing. It's preparing us to let go and allow things to move ahead in a smoother manner when we need to sell our business, when it comes to that time. What I'd like to do, we mentioned a little bit before the break, we talked about the key components. In addition to key components there are key parties, necessary parties involved. And it's not just me, the owner of my business, but there are other folks involved, particularly if I have partners, but outside of the sphere of my business as well. Tell us a little bit about who the people are that you'll eventually have to involve in this process?

Peter: There's a number of different relationships that most businesses have and some of those people will be involved. The starting point for me, and I'm probably biased, is that the attorney should be involved. And what an attorney does in this process is raise some of the succession planning questions, some of the overarching issues that might come up and they can help identify succession planning objectives for the client and doing some goals. Oftentimes the attorney will coordinate the rest of the team that's necessary into planning. And in that team we have obviously CPAs because financials are going to be very important. And we have financial advisors who will help the client identify post exit financial issues, what their cash needs are and so on. Insurance professionals would be involved because we may need life insurance or key person life insurance to keep funding this business under certain circumstances. Business appraisers, somebody who'll come in and give us an idea of what the business is worth is obviously very important to the process. Because if the business is worth $5 million that gives you different planning opportunities than if the business is worth $500,000. And then investment bankers are typically involved, or brokers, to help the business owner identify potential buyers and sources of funding for that transition. 

There's a number of different relationships that most businesses have and some of those people will be involved.

Jeff: What is the extent of involvement of all of these people? Do we need to involve all of them or do we condense the jobs down or the responsibilities to a couple, two or three key members? Just tell us how extensively their involvement is in the whole process.

Peter: It's going to depend on the business and on the plan really. The first thing that I do with my clients, I want to sit down and help them identify what their goals are. And their goals will tell us really what direction we need to go. And if their goals are not retirement planning issue related that we many not involve a financial planner. But if retirement is the primary issue or driver of this plan then we would involve a financial planner for them to help them identify what their cash needs are and what kind of cash value we need to get to replace income after they retire. So it could involve all of these people, and typically it involves the attorney and a CPA, and generally a broker or an investment banker. But those parties will move from time to time.


Jeff: Through the course of doing business I have formed a number of affiliations and associations with people that I believe would be able to help me potentially with my own succession plan. But I'm just wondering, Peter, if I contact you or another business attorney about doing something like this. Do you have any advice for how I can choose the best possible advisors for my particular situation? And when it comes to all of the people that I involve in helping me with this, who's really the person in charge? Should that be in fact my attorney in helping me put this together? Should they be essentially the point person?

Peter: I'm always happiest when I'm in charge because I have control over transactions. Sometimes the client has a strong relationship with a CPA and they come to me, and that CPA is the one who ends up driving the ship and controlling the transaction. And I take my direction from the accountant or from the broker. But often times I'm the one that's in charge of the transaction. And I think that's the most important piece, is to have at least a person that is driving the ship so to speak that is responsible for coordinating the plan so that they know all the different pieces that are in place. But I think the mistake that some business owners make is that they sort of act as their own general contractor in these things and they hire a lawyer to do a certain piece, and they hire an accountant to do a certain piece, and they hire a financial planner to do a certain piece. And because those different parties aren't communicating there may be some duplication of effort, there may be some inconsistent goals being achieved, there may be contrary goals being achieved because the people haven’t coordinated. So I think the first step is to identify one person who the business owner trusts and has a good relationship with, who understands the whole succession piece. And then have that person identify the necessary players that will come in and perform the roles that we need for the particular plan.

And I think that's the most important piece, is to have at least a person that is driving the ship so to speak that is responsible for coordinating the plan so that they know all the different pieces that are in place.

Jeff: Peter C. Brehm is an attorney with Business Law Center and we're talking about succession planning, Deal Talk here today. My name is Jeff Allen. Peter, I want to take a couple of steps back. The thing that most business owners obviously have concerns about, money, finances, and really doing the best for themselves, looking out for the best, obviously, of their business, the people that work with them, at least we like to hope so. And of course for their own situation in terms of dollars and cents, and the value of their business, and what it is that they're able to get at the end of the day. And they want to capitalize and hopefully be rewarded for all those years of hard work and dedication to their company and their clients, and all those people involved. I'm wondering, succession planning, is this something that you believe could provide at least some psychological peace of mind upfront in terms of potentially the kind of money that it could save a business owner down the line?

Peter: Absolutely. At a bare minimum, Jeff, by having an appraisal done for your business and knowing what that business is actually worth I think creates a great deal of sanity for business owners. I've had a lot of clients come in who have either greatly overvalued their business, thinking that because they knew a guy that sold a business three, four, five years ago for $5 million theirs must be worth at least five million. And they find out that thing is worth $500,000. And then there are clients that I have that have greatly undervalued their business. I think that if you're going to retire and you're basing your retirement upon the value of that business I think you'll get a great deal of comfort and peace by having at least some recognition of what this asset is worth. 

And then the succession plan follows through with that and helps the business owner protect that value, take steps to protect the value through having agreements with shareholders for cleaning up their corporate documents, for cleaning up their financial statements. So that they can best prepare and best sell this business, and be more likely to realize that value that we've identified.


Jeff: Wow, this is really what I wanted to target in on at the beginning. Basically a succession plan is really something that's real. It's a living, breathing thing that can be changed and it can be altered over time in order to accommodate certain changes to one’s business and to one’s business plan, whatever changes those might be. But also too it essentially provides a business owner with some guidance too because of the people that are involved every step of the way who should be involved from the beginning in order to help that business owner get the value he or she would like to ultimately have in their business. The work of the business owner and their people doesn't stop there obviously but just the mere fact that you are putting together a plan for the future, and it's a plan that is living and breathing, and needs to be reevaluated periodically, and provides peace of mind all at the same time. And it gives me the guidance and the steps that I need to take in order to get from point A, to point B, to point C, and eventually point Z is a huge comfort to me. That's me, that's what I'm thinking. But I know that there might be some folks out there who are wondering about potential obstacles or roadblocks to planning. And I was wondering if you have any stories or examples of these types of roadblocks that you've had to deal with and help business owners overcome?

Peter: Yeah. A lot of the roadblocks come from a lack of understanding about what succession planning is. And not knowing really how to begin with the process. Business owners like you said are oftentimes fixated on running their business, trying to make a profit, trying to get payroll paid, and they aren't thinking about what's going to happen tomorrow. When they do they think, "I don't really know how to get started on this." And so they don’t do anything, and sometimes that becomes a really hindrance to planning. I think a lot of times business owners also feel like any time they deal with lawyers, brokers, or insurance people, maybe I shouldn’t disparage the brokers and insurance people by comparing them with lawyers. But they feel like, "It's going to cost me way too much to do this plan, and my business doesn't worth very much, so I'm just going to kind of let it go." And I think a lot of times that's very short sighted, and that business owners should recognize that there's great value that they can create by creating this plan. Not only that peace of mind that you discuss which is worth something but also by doing this planning it not only won't cost them money, it shouldn’t cost them money, but it really should result in them receiving more money because you're doing a plan that will be tax favorable for them, or maximize the amount of value they can get. And so I think that's the long answer to your question which is they don't know how to start or they're afraid their business isn't valuable enough to justify the cost of doing the plan.

A lot of the roadblocks come from a lack of understanding about what succession planning is. And not knowing really how to begin with the process.

Jeff: If I'm just starting out, Peter, and maybe I've just opened my doors. I've got a brick and mortar building, I can have an online business, whatever the case may be, it doesn't matter the industry. When should I really contact someone involved in succession planning, whether that be an attorney or I can take other steps perhaps. But when should I actually start?

Peter: It's really never too early to begin thinking about it in identifying where you would like the plan to go. I think in that example you gave, the best approach to take, that those people you would probably have a business plan, that would project out where the business will be in five years. If your exit strategy is through that business plan or through your general business plan is to be out in 10 years then I think you want to start planning for that exit date. And I think usually a year is too short to actually implement a plan and get a business listed and get it sold, and maximize return. If you're looking out two or three years beyond where you want to sell, I think that usually gives you enough time to identify what your plan should be. Determine what the value of the business is, take some actual fundamental steps to improve the value, the salability of your business, and then go through the sale process. Three and a half to four years is probably a good gauge for me.


Jeff: If someone comes in to your office, Peter, or they give you a call how do you start with them in terms of the steps that are taken, in kind of the order that you would take them?

Peter: My job is to really sit and ask questions about where they are and what they want to do, and help them identify what their goals could be. And I think in a lot of ways that's the most helpful first step, is to see where a business owner would like to go. And help them identify the achievable goals, and carve off the goals that are not achievable. So for example the business owner says, “I would really like to either sell my business to a third party, but I have this key employee who would like to buy the business.” And we look at the value of the business, and there's just no way that key employee could afford that value. I can help the business owner recognize that that's not a viable plan for us and we could now focus on a third party sale or some other transaction because that employee could never afford that transaction. I think that's the first step. And what I would tell your listeners to do and what I tell my clients is that not everything gets done in that first step. This is all a process. It's going to change as the business owner changes, as the business changes. 

So the first step is, and it's really an inexpensive step is just to start identifying. In a perfect world, how would I get out of my business, what would I realize from that business, and what will that transaction look like. And then walking backwards from there to see how we can get to that point.

It's really never too early to begin thinking about it in identifying where you would like the plan to go. 

Jeff: Peter, if people have questions out there and I know that they do, and they'd like to talk to you more about succession planning for their company, or they have some questions in general perhaps about their business, about valuation, how can they reach you?

Peter: I'm glad to be reached by any of your listeners. They can go to our website at, I can also be reached at 952-943-3904.


Jeff: Peter Brehm of course with Business Law Center in Minneapolis, but I'm certain that he would be willing to chat with people and certainly direct them or maybe provide them with a potential resource for folks in your area, wherever you might be doing business or have your business set up. Peter, we've run out of time and there's much more to talk about not only on this subject but I'm sure some other subjects, we're talking about business valuations and how to improve the valuation of our businesses. I'm hopeful that you'd be willing to join us once again on Deal Talk in the future.

Peter: I'd be glad to. Thanks Jeff.

Jeff: Thank you so much. That's Peter C. Brehm, attorney with Business Law Center in Minneapolis. He's been our guest today. 

Deal Talk has been presented by Morgan & Westfield, a nationwide leader in business sales and appraisals. If you're thinking about selling a business or buying one call Morgan & Westfield at 888-693-7834 or visit And for more valuable information and insight from our growing list of small business experts make sure to join us again here on Deal Talk. I'm Jeff Allen. Thanks again for listening. We'll talk to you again soon.