A Closer Look at Business Succession Planning with Guest Tiffany McKenzie, Esq.

Transcription: 

Dayna Thomas:
Today we’ll be talking about business succession planning. As entrepreneurs, we are doing everything we can to build the business of our dreams, investing time, money, and making sacrifices for the success of the business. But have you implemented or even thought about plans? If you’re unable to continue working in or on your business, what will happen to your business as a result of death, disability, or bankruptcy? I know that we’re in the stages of starting and building our business, the last thing that we want to think about is leaving it, but in reality, business succession planning is crucial to make sure that your business survives for many years to come and leave the legacy that you can be proud of.

Dayna Thomas:
On today’s show I have Tiffany McKenzie, Esq., one of the founding partners of Harrison & Held Atlanta Office. Harrison & Held is committed to building a private, well focused law firm like no other. Credited with being the first and only truly national firm dedicated to the needs of high net worth clients. Tiffany focuses her practice on estate planning and end administration, family wealth transfer, tax planning, succession planning, and estate planning with digital assets.

Dayna Thomas:
Outside of her work in estate planning, Tiffany co-owns Vibe Ride, a cycling studio in Atlanta, Georgia with franchise locations in Atlanta and Detroit. She’s also the owner of Perspire Sauna Studio, with four Atlanta locations in Buckhead, Virginia Highland, Sandy Springs, and East Cobb.

Dayna Thomas:
Tiffany, thank you so much for being here today. You just do so much, which is amazing. And on top of that, you’re an expert in business succession planning. Thank you so much for being here. How are you?

Tiffany McKenzie:
Thank you so much, Dayna, for having me. I’m doing very well, thanks.

Dayna Thomas:
Absolutely. I want to jump right into it because business succession planning is a topic that I know is really important. It’s not something that I am an expert in, so I’m really happy to have you here to share the information that you have for our viewers. So I’m going to jump right into it. What exactly is business succession planning and why is it important for entrepreneurs?

Tiffany McKenzie:
Absolutely. Very good question. Let’s get to the basics quite honestly. So, simply, business succession planning is a series of logistical and financial decisions about, as you said, who’s going to take over your business upon retirement, upon death, or upon disability. So really the benefits of succession planning is that you don’t want to spend 30+ years running and building a business only for it to fail in your absence. That’s the last thing you want. And honestly, as a business owner myself, really a lot of the value in most people’s businesses is really in the goodwill, and it’s in the intangibles. It’s not in the hard assets that are just easy to transfer.

Dayna Thomas:
The brand, things like that.

Tiffany McKenzie:
Yeah, exactly. So as I tell my clients, and as I tell many people, failing to plan is to fail, quite honestly.

Dayna Thomas:
That is absolutely right. I think that’s a great introduction and I want to dive even deeper. So tell us what the difference is between estate planning and business succession planning because I think that people use it interchangeably, but if I’m not mistaken, it is different. So tell us the difference.

Tiffany McKenzie:
It is definitely different. So I really think of it as business succession planning is just one factor in the overall estate plan.

Dayna Thomas:
Got it.

Tiffany McKenzie:
So business succession planning, like we said, is how do we continue the business upon retirement, upon death, or upon disability, but estate planning is really the umbrella. So giving you the opportunity to carry out your wishes, for all of your assets not just the business, so your home, your minor children, things like that. So estate planning is more of the umbrella, and business succession planning is literally just one piece underneath it.

Dayna Thomas:
That makes sense. So it’s just a part of it. It’s just one asset that can be in the many assets that is in your estate to plan. Got it right?

Tiffany McKenzie:
Correct.

Dayna Thomas:
Okay.

Tiffany McKenzie:
Correct. Absolutely.

Dayna Thomas:
Awesome. So I know there can be many options as it relates to decisions in your estate plan or your business succession plan. So what options do entrepreneurs have in determining who their business will be transferred to in a business succession plan. And sometimes we think of movies and things like that, where people just fight and argue over it, what are the options of who can actually receive or the business can be transferred to?

Tiffany McKenzie:
Exactly. So you think about the drama kind behind it. Because without business succession planning, it really invites disruption, it invites uncertainty, conflict, really endangers future competitiveness of your business. And then if you even layer on the fact that if this is a family business that you could introduce-

Dayna Thomas:
I can only imagine.

Tiffany McKenzie:
… all of the emotional and personal issues that come with running a business with your family. So there’s lots of options really when it comes to transferring your business in a business succession plan. So you could sell your shares or your ownership to a co-owner. So if you own the business with someone, maybe that’s the ideal person. It could be your heirs. So passing ownership, interest, to your family members. It could be a key employee. So maybe you sell or transfer your business to someone that already is inside the business and that has experience with the business and ability to handle it.

Dayna Thomas:
Wouldn’t they love that.

Tiffany McKenzie:
I know. It could also be an outside party. So just someone completely outside of the organization, a third party. Also, we’ve seen for companies, sometimes they’ll sell back the business to the actual company, and then maybe multiple people or multiple employees or C-level people take over the business. Or, honestly, it could really just be a mix of all of the above.

Tiffany McKenzie:
So what I tell people a lot when it comes to business succession planning, is that I need you to compartmentalize it. It’s control and it’s ownership. Those are two different things. So you can pass control to some person and pass ownership to another person.

Dayna Thomas:
Separately. Interesting.

Tiffany McKenzie:
Yeah. So you could say, “You know what, I want my co-owner to have voting rights to run the business, but I want my spouse or my kids to actually own my ownership interest.” So just keeping that in mind that it could be just a mixture of many things.

Dayna Thomas:
I think that reminds me of when I’m drafting operating agreements, which we do kind of touch on business succession planning, just a piece, just in case the entrepreneur doesn’t have a full plan, and for sure that there is a difference between control and ownership. Because the family could own it, but they might not know anything about the business so they are not controlling it because they can’t make those business decisions. So that makes sense.

Tiffany McKenzie:
Absolutely.

Dayna Thomas:
Awesome. So sometimes we think that you should have a certain worth or value of the business. It has to be multimillion dollar business in order for you to even think about a business succession plan. So when should entrepreneurs even think about it or start working on their plan, and is it determinant on how much the business is worth?

Tiffany McKenzie:
Very good question. And I say this too, with people that I’m doing their estate plans with, is that you’re never too young, you’re never too poor. So as soon as possible. Quite honestly, that’s the best answer. But keeping in mind that the more revenues that the business has, the more complex the business becomes, the harder it’s going to be for you to start this succession planning. So the sooner you start it, the easier it’ll be on the lifetime and the trajectory of your business.

Tiffany McKenzie:
I say for certain, if you plan on retiring, you need to at least within five years of your slated date to retire. I also tell clients that are older and that may have health issues start as soon as possible because you never know what could happen. But again, the little taking bite size bites at it right year by year, maybe even just starting with getting your documents in order, maybe just starting with organization, maybe starting to vet out the people in your business. Who’s appropriate, who has enough experience.

Dayna Thomas:
Stepping up to the plate. Yeah.

Tiffany McKenzie:
Exactly. So just taking bite size pieces over the lifetime of your business is going to make it a lot easier when you decide to either maybe sell the business or retire or, God forbid, something catastrophic happens.

Dayna Thomas:
Awesome. That makes a lot of sense. So from what I’m learning, it sounds like it’s never too early. However, I can imagine that if you do start your plan or draft it in the early stages of business, you may need to update that along the way. Is that right?

Tiffany McKenzie:
Absolutely. Absolutely.

Dayna Thomas:
Okay. That sounds good. So keep that in mind that even though you do draft it, your business might be grown, you have different people involved, or your decisions may change. So if you have an opportunity to update it along the way, you certainly should do that.

Tiffany McKenzie:
Exactly.

Dayna Thomas:
All right. So what are some mistakes that you see entrepreneurs make in their business succession plan?

Tiffany McKenzie:
The first one, and I see this too with estate planning, is access. You might give everybody the keys to the castle, but they don’t know where the castle is. So what is the point?

Dayna Thomas:
I love that analogy.

Tiffany McKenzie:
Yeah. So being really, really as to who’s who, what’s what, where are things, and making that a part of the actual business succession plan. And I say this too, with estate planning, is someone dies and they don’t even know what assets someone knows. You know? So I think that’s the number one thing is really being clear about the who’s, the what’s, and the where’s.

Dayna Thomas:
Okay.

Tiffany McKenzie:
The second thing I would say, which you kind of just touched on, is that many times people fail to review their plan regularly. As we know time changes many things. Relationships change, companies change tax law updates, changes in valuation of your company, new industry developments, COVID, things that make you pivot. Those are things that you need to reassess when it comes to your business succession plan.

Tiffany McKenzie:
And I say that’s really important too, as we discussed earlier, and even more so important with family-owned businesses. Because there are changing family dynamics all the time. All the time. So do all the members in your family have the same desires? Do they want to be key players? Do they want to sell? What does everybody want to do? And really, business owners must update and adjust their business plans to reflect those changes.

Dayna Thomas:
You mentioned COVID. So have you seen a lot of updates as a result of COVID recently?

Tiffany McKenzie:
Absolutely. Because there are so many businesses that have pivoted due to COVID, and/or have made a bunch more money or lost a bunch of money.

Dayna Thomas:
One or the other, it’s true.

Tiffany McKenzie:
Exactly. So I think COVID really… And just throw in there too, the labor market has completely changed because of COVID. So yes, absolutely. COVID has changed the landscape of so many entrepreneurs.

Dayna Thomas:
Awesome. So now that we’ve learned what not to do, let’s talk about what makes a good succession plan. So what, to you as the expert, makes a good succession plan, and what does it look like? Is it just one document? Is it made up of several different documents? Tell us a little bit more about that.

Tiffany McKenzie:
I consider it several different documents and several different thoughts. I think first and foremost is kind of what are the details around your succession timeline? Are you retiring? Are you older? When do you think it’s going to take place and maybe working backwards from there. Maybe even just starting with a list of potential successors, maybe writing down their strengths, maybe writing down order of considerations. So if the first person isn’t going to work, who’s next up in line in your mind.

Tiffany McKenzie:
And then there’s the documents. So your standard operating procedure. So your handbooks, your procedures, training documentation, the documents that’ll actually help you transfer, like you said, your operating agreement. Do you need a power of attorney for just business decisions that are separate than your personal decisions? Insurance documentation, things like that are going to come into the document part.

Tiffany McKenzie:
And then there’s also valuations. What is your business worth? Sometimes businesses will get their businesses professionally valued or appraised on maybe every five years or 10 years.

Dayna Thomas:
I feel like that’s its own conversation is business appraisal. How do you even put a number on it?

Tiffany McKenzie:
Exactly, exactly. Yeah, and then do you need to have a key man life insurance policy? How is your business going to run without you, money-wise, financially? So thinking about that as well.

Dayna Thomas:
Wow. I can only imagine with the businesses that I have as well, just even thinking about that, how is the business going to run without you? That is a huge question. And that’s definitely something that you have to build on the way up, right? So we can’t just have it in a plan without doing the work now to make sure that when that plan is needed everything is lined up so it can be seamless. So I can only imagine.

Tiffany McKenzie:
Yeah.

Dayna Thomas:
Wow. So there’s a lot of decisions that go into a business succession plan. It’s not one point in the life of the business, it sounds like. Right, Tiffany?

Tiffany McKenzie:
Correct.

Dayna Thomas:
It’s we’re constantly thinking about it, it’s constantly evolving, constantly changing. So to me, this sounds like something that a person or an entrepreneur would certainly need help with doing. So how can viewers, entrepreneurs, business owners contact you to discuss working with you for their business succession plan?

Tiffany McKenzie:
Sure. You can find me online. My name’s Tiffany McKenzie. I’m at Harrison & Held. On Instagram I’m tiffany.n.mckenzie. My telephone is 404-566-4303. And my email is tmckenzie@harrisonheld.com.

Dayna Thomas:
Thank you so much, Tiffany. I learned a lot about business succession planning, so I know that those who are watching learned a lot about it. Again, I want to encourage all of you to take this seriously. This is your business, this is your baby, it’s your dream. It can leave a phenomenal legacy for you, so treat it like a business and not like a hobby, and make sure that it can survive without you along the way for many, many years to come so that it can be something that is phenomenal for generations and for your family along the way. So thank you again, Tiffany. And I’m looking forward to learning more from you.

Tiffany McKenzie:
Thank you so much for having me.

Dayna Thomas:
All right. Absolutely. All right. Well, I hope today’s show helped to educate and inspire you as you pursue your business goals. Be sure to share today’s show with someone who can benefit and visit myasbn.com and subscribe. If you have any questions or comments about today’s show, I would love to hear from you. Send me a message or comment on Instagram at daynathomaslaw, and remember to tune in next week and every week to make sure your business is launched and legal.