When it comes to business succession planning, there is one takeaway Stradley Ronon Stevens & Young Partner Steven Scolari would like everyone to understand: it's a multi-disciplinary approach.
"There's a lot of different expertise that comes into play," he says. "There's wealth and financial planning, there's tax planning typically through your accountant, estate planning, corporate planning, and then oftentimes there's also expertise in the life and disability insurance area, and depending upon your ultimate succession event, there can be investment banking and business brokers. And it's really critical that they all work together."
He cautions that any professional who says they can handle the whole succession planning engagement on their own are likely either very inexperienced and uninformed about the process or they're lying.
"So, it really is important that you get experts in each of these areas and it's very important that they all work together," he says. "Each of these areas has their own set of objectives that need to be worked out with the client and they need to work together."
When working with a number of professionals on a single project, Scolari suggests choosing one to be the lead or the quarterback in the process.
"It is important that you do have somebody who does take the lead to make sure that all the professionals are picking up the oar and paddling in the same direction," he says.
When it comes to the corporate planning piece, the work is reflected from a unique place depending on the entity. The conversation springs from a shareholders agreement for those in a corporation. Those in a limited liability company will work from an operating agreement or LLC agreement — sometimes there's a separate numbers agreement, which is apart from the operating agreement. And if you're a limited partnership, he says it'll typically be in your limited partnership agreement. While there's common themes and objectives that he's run across in his years of doing this, these agreements can be drafted in a multitude of ways depending upon how those objectives play out. In fact, he says, they're probably some of the most complicated agreements because they touch on, in some way, the many areas involved in succession planning.
"One of the mistakes that I think people often make is that the drafter will just get into drafting an agreement and there's no discussion of what those objectives are behind those provisions," he says. "And it can be a daunting task, quite frankly, for the owner to then figure out what's going on. So, before I do any drafting, I always focus the owners in on what are your objectives here of doing this and identifying them, agreeing upon them, and also prioritizing because some of the objectives are going to take priority over other ones."
Once that's done, he says the next step is to put that into an outline. That outline then will show what the shareholders or buy-sell agreements going to look like. It's often a useful tool because when the document is drafted they can annotate back to that outline, which makes it a lot easier for people to follow and see where a certain objective is working into certain provisions of the agreement.
"It just makes it that much easier for people to understand what it is you're getting into," he says.
Scolari talked more at the Philadelphia Smart Business Dealmakers Conference about succession planning. Hit play to catch more of that panel’s discussion.