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Selling a Small Business and Succession PlanningInstructor GuideTable of ContentsGetting Started . 3Training Overview . 5What Do You Know?. 7Why Sell? . 11Discussion Point #1: Reasons for Selling the Business . 11Steps to Selling a Business . 12Discussion Point #2: Challenges of Selling the Business . 16Planning Succession . 18Discussion Point #3: Benefits of Selecting a Successor . 18Planning Retirement . 20Top Three Key Points to Remember. 22For Further Information . 24Post-Test . 25Evaluation Form . 26DISCLAIMERThese training materials are intended as general guidance only and may or may not apply to a particular situation basedon the circumstances. The materials do not create any legal rights or impose any legally binding requirements orobligations on the Federal Deposit Insurance Corporation (FDIC) and U.S. Small Business Administration (SBA). TheFDIC and SBA make no claims or guarantees regarding the accuracy or timeliness of this information and material.The content of this training material is not designed or intended to provide authoritative financial, accounting,investment, legal or other professional advice which may be reasonably relied on by its readers. If expert assistance inany of these areas is required, the services of a qualified professional should be sought.Reference to any specific commercial product, process, or service by trade name, trademark, manufacture, or otherwisedoes not constitute an endorsement, a recommendation, or a preference by the FDIC and SBA or the United Statesgovernment.Money Smart for Small BusinessPage 2 of 26
Selling a Small Business and Succession PlanningInstructor GuideGetting StartedUse this guide to help teach this training in an informative, engaging, andeffective manner.You can customize the information in Selling a Small Business andSuccession Planning for a Small Business to meet the needs of youraudience. However, it is usually a good idea to include: Introductions. Allows you to “break the ice,” create active instructorparticipant dialogue, and set the tone for the session. Agenda and Ground Rules. Helps participants understand how thetraining will be conducted.Expectations. Gives participants the opportunity to tell you what theyexpect to learn from the training.Objectives. Helps participants place the information to be learned inthe proper context and ensures that the content is consistent with theirexpectations.Explanation of Participant Guide Format and Contents. Serves tokeep participants on track with the presentation.What Do You Know? Form and/or Pre-Test. Helps you andtraining participants to determine what they already know or do notknow so you can customize the presentation accordingly.Discussion Points. Helps participants to reinforce learning.What Do You Know? Form and/or Post-Test. Helps you andtraining participants to gauge how well participants have learned thepresentation content, giving you an indication of what content toreview, if any, and what additional materials participants may want toreview on their own. Money Smart for Small BusinessPage 3 of 26
Selling a Small Business and Succession PlanningInstructor GuideIcons GuideThe following icons may be used throughout the Instructor Guide to indicate an activity type.PresentationReviewPresent information ordemonstrate an idea.Refer participants to andsummarize material providedin the participant guide.DiscussionAssessmentFacilitate a discussion about atopic as directed.Direct participants to take ashort test.Ask a QuestionPresent a problem or questionfor discussion.Money Smart for Small BusinessPage 4 of 26
Selling a Small Business and Succession PlanningInstructor GuideTraining OverviewPurposeThe Selling a Small Business and Succession Planning for a Small Business module provides an overview of selling smallbusiness and succession planning and is designed to help participants to understand how selling a business can benefittheir business.Objectives After completing this training, you will be able to:Explain how to change the ownership of a business through selling, closing, or transferring the businessto successors.Explain how to establish an exit strategy for retirement which includes a succession plan, transferring ownershipof the business, and paying taxes.Presentation TimeEach topic has an approximate completion time. Use the suggested times to personalize the module based on yourparticipants’ needs and the given time period. Allow extra time for activities and questions when teaching larger groups.Materials and EquipmentThe materials and equipment needed to present this module are: Instructor Guide Participant Guide PowerPoint slides (e.g., FDIC SBA SELLING SUCCESSION PLANNING.pptx) Audiovisual equipment (such as a computer with Microsoft Office PowerPoint, overhead projector, andmicrophone, if appropriate)Training Discussion Points Discussion Point #1: Reasons for Selling a BusinessDiscussion Point #2: Challenges of Selling a BusinessDiscussion Point #3: Benefits of Selecting a SuccessorMoney Smart for Small BusinessPage 5 of 26
Selling a Small Business and Succession PlanningInstructor GuideInstructor Notes5 minutesPresentationWelcomeWelcome to Selling a Small Business and Succession Planning for a SmallBusiness. By taking this training, you are taking an important step tobuilding a better business.AgendaWe will discuss concepts, do an activity, and have time for your questions.There will be at least one 10-minute break during the class.Slide 2Ground RulesIf you have experience or knowledge in some aspect of the material, pleaseshare your ideas with the class. One of the best ways to learn is from eachother. You might be aware of some method that has worked well for you orsome pitfall to avoid. Your class contribution will enhance the learningexperience.If something is not clear, please ask questions!IntroductionsIntroduce yourself and share a little of Before we get started, I will share a little about myself and I would like toknow a little bit about you. As you introduce yourself, state:your background and experience. Your expectationsRecord participants’ expectations, Questions and/or concerns about the training contentquestions, and concerns on chartpaper. If there is anything you will notbe teaching, tell participants where theinformation can be obtained. Check offtheir responses at the end of thetraining to show expectations weremet.Money Smart for Small BusinessPage 6 of 26
Selling a Small Business and Succession PlanningInstructor GuideInstructor NotesPresentationParticipant MaterialsEach of you has a copy of the Banking Services Available for a SmallBusiness Participant Guide. It contains information and discussion pointsto help you learn the material.Review Participant Guide contents andorganization with participants.What questions do you have about the training overview?ObjectivesAfter completing this module, you will be able to: Consider issues for changing the ownership of a business throughselling, closing, or transferring the business to successors. Explain how to establish an exit strategy for retirement whichincludes a succession plan, transferring ownership of the business,and paying taxes.Slide 3What Do You Know?Before we begin, let’s see what you know about selling a small businessand succession planning for a small business.Slide 4Use the What Do You Know? formand/or the Pre-Test to gaugeparticipants’ prior knowledge of thecontent and customize yourpresentation, focusing on content withwhich they are least familiar.Money Smart for Small Business[If using the What Do You Know? Form]The What Do You Know? form on page 4 of your participant guide letsyou compare how much you know before the training and how much youlearned after the training. Please take a few minutes now to complete the“Before Training” column. Which statements did you answer with“Disagree” or “Strongly Disagree?” [Note: If time is limited, make sureyou cover these content areas.] We will complete the second column whenwe finish the training.[If using the Pre-Test]Take a few minutes to complete the Pre-Test beginning on page 5 of yourparticipant guide. Which questions were you unsure of or were unable toPage 7 of 26
Selling a Small Business and Succession PlanningInstructor NotesInstructor GuidePresentationanswer? [Note: If time is limited, make sure you cover these contentareas.]As we progress through the training, you will see if you answered eachquestion correctly.Money Smart for Small BusinessPage 8 of 26
Selling a Small Business and Succession PlanningInstructor GuideWhat Do You Know?Selling a Small Business and Succession PlanningInstructor: Date:This form will allow you and the instructors to see what you know about selling a small business and succession planningboth before and after the training. Read each statement below. Please circle the number that shows how much you agreewith each statement.Money Smart for Small BusinessDisagreeAgreeStrongly AgreeStrongly DisagreeDisagreeAgreeStrongly Agree1. I can navigate changing ownership of abusiness, such as through selling, closing,or transferring to successors.2. I can establish the right exit strategy forretirement including a succession plan,transfer of ownership, and taxes.After TrainingStrongly DisagreeBefore Training1234123412341234Page 9 of 26
Selling a Small Business and Succession PlanningInstructor GuidePre-TestTest your knowledge about selling a small business and succession planningbefore you go through the course.1. Which of the following are reasons to sell your business? Select all that apply.a. New job offerb. Profits are more than needsc. Market or industry changesd. Someone offers to buye. Ready to retire2. Most business valuation methods are a combination of two factors: .a. Revenue stream and assetsb. Customer base and net worthc. Gross profit and assetsd. Revenue stream and net worth3. When selling your business it is important to know both the buyer’s financial ability and the buyer’smanagement skills.a. Trueb. False4. Succession planning deals with the process of .a. Determining a plan for your business over the next five yearsb. Identifying buyers for your businessc. Passing control of your business to othersd. Selling your business to family members5. Small business retirement plans are not recognized by the Internal Revenue Service (IRS).a. Trueb. FalseMoney Smart for Small BusinessPage 10 of 26
Selling a Small Business and Succession PlanningInstructor GuideInstructor Notes10 minutesPresentationWhy Sell?While many businesses run for years, even over several generations,businesses open and close all the time. Here are a few reasons why youmay want to sell or close your business.Slide 5Business or professional reasons include: Job offer from another company Purchase offer for your business or your business assets Dissatisfaction with sales and profits Changes in the market or industryPersonal reasons to sell a business include: Retirement Burnout with self-employment Health concerns or family needs Desire to go in a new directionSlide 6Discussion Point #1: Reasons for Selling theBusinessWhat is the main reason for selling your business?Slide 7Refer to the participant guide.Money Smart for Small BusinessPage 11 of 26
Selling a Small Business and Succession PlanningInstructor Notes15 minutesInstructor GuidePresentationSteps to Selling a BusinessShould you decide to sell your business the following slides will help youmake the proper decisions.Slide 8Determine If Business is SaleableBefore starting, you need to determine if you have a saleable business.Here are some questions to consider when determining if you have asaleable business.Slide 9Does you business have a history of strong profits?A financially strong business has a lot to offer a new owner. If yourbusiness is struggling financially, the business will not be as attractive tobuyers. Sometimes a business does not even have a market value beyondthe assets of the business.Is the business in an attractive industry?Some types of businesses have more appeal than others.Is the business in a location convenient to potential buyers?Location is important to many businesses. Some businesses can be easilymoved, others cannot.Are your assets in good shape?Having assets in good condition, with significant market value andremaining useful life, adds to your business’ value.Do you have quality inventory and good supplier relationships?A prospective buyer wants to see quality (e.g. fresh) inventory and solidrelationships with suppliers.Money Smart for Small BusinessPage 12 of 26
Selling a Small Business and Succession PlanningInstructor GuideInstructor NotesPresentationDo you have a solid customer base?A healthy list of returning customers makes your business more valuableand attractive.Can you transfer your business to another person?Some businesses are dependent on a particular person’s talents and cannotbe transferred to another person.Do you have a healthy balance sheet?A combination of good retained earnings and net worth, low debt, andcollectable accounts receivable make for an attractive business that is worthpurchasing.Determine Your PriceThe value of your business can be determined by many business valuationmethods. Most valuations are a combination of two factors: Assets, such as cash, receivables, inventory, equipment, andreal estate Revenue stream, that is, net profit over timeSlide 10Assets are usually priced using market valuation. Valuing revenue stream ismore complicated, involving return on investment, comparisons toalternative investments, and growth potential.Many owners get help from accountants, attorneys, and industry specialistswhen determining the value of their businesses.Prepare For SaleSlide 11Money Smart for Small BusinessWhen preparing for the sale, here are some items to consider: Resolve outstanding issues such as unpaid accounts receivable,debt, lawsuits, and environmental hazards. Demonstrate that accounts receivable can be collected. Prepare historical and projected financial statements. Provide a convincing business plan for the future. Secure beneficial relationships with suppliers and customers. Get the premises in good shape. Sell old inventory.Page 13 of 26
Selling a Small Business and Succession PlanningInstructor NotesInstructor GuidePresentationIn addition, you must determine exactly what equipment is included in thesales price and make sure all this business and office equipment is in goodorder. Finally, you should provide a clear picture of how you will becompensated as the owner.Look for Prospective BuyersProspective buyers may include: Employees with enough management experience and skill to takeover the business Long-standing customers who might have a passion for yourproduct or service Business owners whose businesses would be enhanced by yourproduct or service Competitors who might see a benefit in absorbing your businessSlide 12You will want to advertise online, through trade associations, and via emailto inform potential buyers that your business is for sale.Negotiating the DealNegotiating and structuring a business sale is a complex process. Manybusiness owners engage the expertise of attorneys and accountants. Hereare some of the issues to consider.Slide 13Buyer qualificationJust like buying a home, buyers need to demonstrate the financial ability topurchase a business. Demonstrated financial ability includes havingsufficient cash and the credit worthiness for borrowing part of the purchaseprice. A prospective buyer should also demonstrate the management skillsto run the business.Payment in lump sum or installmentsBuyers can provide the entire price, through a combination of cash andloans from banks, or pay the business seller in installments.Non-compete agreementOften business sellers are required to sign an agreement to not start acompeting business for a few years.Money Smart for Small BusinessPage 14 of 26
Selling a Small Business and Succession PlanningInstructor NotesInstructor GuidePresentationManagement assistanceThe new owner of a business may benefit from the previous owner’sexpertise. The seller of a business often will serve as a paid consultant ormanager for a few months to help the new owners learn how the businessoperates.Sales agreement preparationA sales agreement covers many elements of the sale including sale price,buyer deposit, promissory note, security, seller and buyer’s representations,contingencies, dispute resolution, and more.Down paymentIf a purchase is to be paid in installments, the buyer and seller must agreeon a down payment.CollateralIf the purchase requires a loan, all parties must agree on collateral. Oftenthe business itself is collateral. However, if the seller does not want thebusiness back in the case of a default, the parties can negotiate a differentform of collateral.As you can see, many factors are involved in the sale of a business. Youshould work with an experienced attorney and an accountant to helpstructure the deal and prepare all the documentation.Money Smart for Small BusinessPage 15 of 26
Selling a Small Business and Succession PlanningInstructor NotesInstructor GuidePresentationDiscussion Point #2: Challenges of Selling theBusinessWhat is the main reason for selling your business?Slide 14Refer to the participant guide.10 MinutesClosing a BusinessSlide 15Here are a few reasons why it might make more sense to close a businessrather than sell it: The businesses might be too small, with insufficient assets andprofitability, to interest a buyer. Businesses in decline are not promising investments. Businesses that are specialized, located in remote areas, or haveother unique characteristics may be difficult to sell. Businesses with significant assets, but not sales, might be better offselling the assets and closing.Here are some steps to take when closing your business.Follow Instructions in Your Founding DocumentsIf you're a sole proprietor, you don't need to worry about closing accordingto the requirements of business organizational documents. If your businessis a general partnership that doesn't have a written partnership agreement,then you need to give notice to your partner of your express desire towithdraw from the partnership. On the other hand, if your business is apartnership with a written partnership agreement, a limited liabilityMoney Smart for Small BusinessPage 16 of 26
Selling a Small Business and Succession PlanningInstructor NotesInstructor GuidePresentationcompany (LLC), or a corporation, you will need to follow the rules ofdissolution contained in the partnership agreement, articles ofincorporation, or applicable state laws.File Dissolution Documents with the StateAll limited and general partnerships that filed with a state at the inceptionof the partnership must file dissolution papers with the state. Once youhave voted to dissolve an LLC or corporation, you file paperwork with thestate, certifying the decision to terminate the business. Filing a certificate ofdissolution (also known as articles of dissolution) is a process that variesfrom state to state.Sell Business AssetsIf you have business assets, equipment, inventory, and real estate, you willlikely want to sell your assets before closingthe business.Cancel Permits, Licenses, and Lease AgreementsReview all the registrations, licenses, and permits you obtained to open andrun your business. Contact licensing and permitting agencies and followtheir cancelation processes. If you are leasing office space or equipment,you will need to terminate your leases—review your lease agreement forthe details, including what penalties you may incur.Comply with Tax LawsWhen you end a business, the company is still liable for taxes for prior andcurrent years. This means that you must continue making deductions frompaychecks and continue payroll reporting obligations. You should continueto file your quarterly or annual taxes, and your capital gains and liquidationforms. You will also be responsible for all final tax forms that need to befiled, including forms for income tax, sales tax (that has been collected),and payroll taxes.Resolve Outstanding Issues with Customers, Creditors, and SuppliersPay all of your debts, collect balances due from customers (receivables),and close all of your accounts.Maintain RecordsAlthough you’ve closed the doors, continue to maintain and retain businessrecords. You will need to file income taxes, answer inquiries, and respondMoney Smart for Small BusinessPage 17 of 26
Selling a Small Business and Succession PlanningInstructor NotesInstructor GuidePresentationto agencies seeking information. You could still be audited and may needto answer questions from those with whom you have done business.Get HelpSeek help from your accountant and attorney to review the closing process.10 MinutesPlanning SuccessionSuccession planning involves creating a plan for someone to either own orrun your business after you retire, become disabled, or die. In simple terms,succession planning is the process of passing control of the business toothers.Slide 16Discussion Point #3: Benefits of Selecting aSuccessorWhat benefits do you see to selecting a successor? What would happen ifyou weren’t able to continue running your business and you did not have asuccessor?Slide 17Money Smart for Small BusinessPage 18 of 26
Selling a Small Business and Succession PlanningInstructor NotesInstructor GuidePresentationIssues to Consider in Succession PlanningFind SuccessorIf you are passing the business to a family member, you may considertransferring ownership through your estate planning process. Often,however, new management comes from your pool of existing employees. Ifyou have a larger business (such as an LLC or a corporation), successionplanning involves preparing people for management and leadership roles inorder to replace you or other managers when the time arises.Slide 18Finding your replacement is difficult so plan ahead, it is best to start early.Leaders are not always easy to find and it takes time to mentor someoneinto a management role. You will need to identify potential successors inyour family or among employees. You can hire from outside the company,but it’s helpful to groom someone already in your business, over a periodof time, so the transition to new leadership will be smooth.Train SuccessorOnce you have successors identified, deliberately create a training plan toensure that everyone involved has time to learn the skills, gather theinformation, and practice the leadership roles critical to the future successof the business.Whether you are transferring a business to a family member or you arepromoting employees into leadership roles, you need to plan ahead. Asuccession plan takes into consideration the development of future leaders’skills and abilities. The plan should deliver a return on your business’straining investment by providing for your successors’ advancement whilesimultaneously ensuring your successors don’t leave your business. Even ifsomeone leaves, a current employee should be ready to step into thevacated role. As the need arises, with good succession planning, employeesor family members are ready for new leadership roles.Ease Tax ExposureTax exposure arises when one generation gives way to the next generationin a closely-held family business. In this case, succession planning andestate planning become intertwined by the family. Multiple types of taxesmust be considered when planning this type of succession, including: Income tax Gift tax Generation-skipping tax Estate taxMoney Smart for Small BusinessPage 19 of 26
Selling a Small Business and Succession PlanningInstructor NotesInstructor GuidePresentationStart family succession planning sooner, rather than later, because startingsooner will give you more flexibility with your planning. Consult anattorney and an accountant about putting the proper estate documents inplace, especially for succession planning in a family business.10 minutesPlanning RetirementEven if you do not plan to sell your business in the near future, it is still agood idea to be planning for retirement by making regular contributions toa retirement plan.Slide 19Starting a retirement savings plan can be easier than most business ownersthink. By starting a retirement savings plan, you will help not only you butalso your employees save for the future. What’s more, retirement programscan provide tax advantages to both employers and employees. You canestablish a plan even if you are self-employed.Retirement Plan BenefitsSlide 20Money Smart for Small BusinessA retirement plan has many benefits. Primarily, a retirement plan helps youand your employees to save and invest toward financial security inretirement. You and your employees get significant tax advantages andother incentives: Employer contributions are tax-deductible. Assets in the plan grow tax-free. Flexible plan options are available. A retirement plan can attract and retain employees, reducing newemployee training costs.Page 20 of 26
Selling a Small Business and Succession PlanningInstructor GuideInstructor NotesPresentationEmployee BenefitsSlide 21Employee benefits include: Contributions to the plan reduce current taxable income. Contributions and investment gains are not taxed until thecontributions and gains are distributed. Contributions can be easy to make through payroll deductions. Small regular contributions can grow to significant retirementsavings over time as a result of compounding. The earlier in life anemployee starts to save, the more they will benefit from compoundgrowth. Retirement assets can be transferred to a new plan if the employeeleaves the company.Retirement PlansSlide 22Money Smart for Small BusinessSmall business retirement plans are recognized by the Internal RevenueService (IRS) as a means to help employers and employees save towardretirement. There are many retirement plan options available for a smallbusiness. There are three key types of IRA-based options:§Simplified Employee Pension Plans (SEP) are available forany size business. Only the employer contributes to theretirement plan—the employer can contribute up to 25 percentof each employee’s pay. Contributions to a SEP are taxdeductible.§The SIMPLE (Savings Incentive Match Plan forEmployees) Individual Retirement Account Plan allows abusiness that has 100 or fewer employees to help employeessave for retirement. Employees can contribute to the IRA, on atax-deferred basis, through payroll deductions. As the businessowner, you can choose either to match the employee’scontributions or to contribute a fixed percentage of all eligibleemployees’ pay.§Payroll Deduction IRAs: Even if you do not want to adopt aretirement plan, you can allow employees to contribute to anIRA through payroll deductions. As the employer, you wouldset up the payroll deduction IRA program with a financialinstitution, and then the employees choose whether and howmuch they want deducted from their paychecks and depositedPage 21 of 26
Selling a Small Business and Succession PlanningInstructor NotesInstructor GuidePresentationinto the IRA. The employee makes all of the contributions.There are no employer contributions.Another retirement plan option is defined contribution plans, such as a401(k) plan or a profit-sharing plan. For example, A 401(k) plan allowsparticipants to decide how much to contribute to their accounts, andemployers are entitled to a tax deduction for any contributions they make toemployees’ accounts. Banks that provide 401(k) retirement savingsproducts will generally assist you in setting them up and even provideeducation for your employees on important features of the plan.Review the options available to you wit
Selling a Small Business and Succession Planning Instructor Guide Money Smart for Small Business Page 6 of 26 Instructor Notes Presentation 5 minutes Welcome Slide 2 Welcome to Selling a Small Business and Succession Planning for a Small Business. By taking this training, you ar
3. Topic: Succession a. Activity: Succession Notes, Succession Packet b. Textbook: Section 4.3 c. Practice: i. Complete the Venn Diagram comparing Primary and Secondary Succession Primary Succession Secondary Succession which is _ (longer/shorter) than _ succession. Look at Year 1-3, what letter does the graph look like?
What is primary succession? 3. When a disturbance changes a community without removing the soil, what type of succession follows? 4. Describe the process of succession in an ecosystem. 5. Why does secondary succession typically proceed faster than primary succession? 6. Use the Venn diagram to compare the two types of ecological succession. Primary
What Is Succession Planning, and Why Is It Needed? Succession planning, sometimes called succession management to emphasize the active and continuous nature of the effort, is a process for preparing people to meet an organization's needs for talent over time. As I defined it in my book Effective succession planning (2005, p. 10), succession .
run. It is an ideal way of planning for succession across several levels in an organization: Leadership succession planning: Non-leadership succession planning: Connect with an expert Types of succession planning Each business structure will require a different type of succession plan. For example, sole proprietorships and partnerships, the
Succession – may take place in one of 3 ways: 1. Testamentary succession - in accordance with a will which the testator regulates the succession. 2. Intestate succession – through the operation of the law of intestate succession, where the deceased did not leave a will – estate is intes
Emergency Succession A sample template to provide guidance on writing an . Emergency Succession Plan Emergency Succession Planning Template . Other . Bonner Consulting’s Blog , contains several recent articles on Succession Plannin
Staff Departure-Defined Succession Planning vs. Emergency Succession Planning3 Departure-defined succession planning occurs when a key leader identifies an exit date two to five years in advance of his or her departure. Departure-defined succession plans usually consists of specific, detailed steps for organizational leadership to take during a .
Previous editions of this Standard were issued in 2003, 2012, and 2016. The 2019 edition of this Standard was approved by the American National Standards Institute as an American National Standard on December 4, 2019. v This is a preview of "ASME PVHO-2-2019". Click here to purchase the full version from the ANSI store.
