Succession Planning
Case Study

Building value in a company is essential.

Succession planning should be a formal process and not a surprise, which will help mitigate risk and protect value.

Smith Schafer Approach

Smith Schafer reviewed the goals and concerns with the client, including a timeline, buyer options, etc.
Note: A buyer for a company generally comes from three areas:

  1. Family members (sons, daughters, or other relatives) working for the business or not
  2. Employees working for the business
  3. Outside buyers

Do they have the knowledge base to operate the company?
Do they have the financial ability to purchase, or must the seller provide seller financing?

Then we began evaluating items on their balance sheet, including cash, inventory, prepaid expenses, fixed assets, etc. We asked questions such as:

  • Cash. How much cash is necessary to operate the business?
    Value Tip: If there is excess cash, consider how to get it to the current owner.
  • Inventory. Is it organized so employees can quickly locate what they need? Is there obsolete or slow-turning inventory which can be scraped or sold for cash? Is the inventory listed and priced? Do we maintain a perpetual inventory system that is updated daily by our point of sale system? Is inventory counted and adjusted at least annually? Is this asset worth more to you or the buyer?
    Value Tip: Consider a “Just in Time” inventory approach where the product comes in shortly before needed.
  • Prepaid Expenses. Have we tied up cash in these expenses because it is easier than dealing with this expense more often? Have we discussed the approach with our vendor to pay more often on an automatic payment plan?
  • Fixed Assets. Are all of the assets necessary to operate the business? How long has it been since the owner looked at the depreciation schedule? Are the assets maintained, or is their apparent deferred maintenance?
    Value Tip: Consider selling fixed assets to generate cash for the business rather than leave the value for the buyer.
  • Other Assets. Are there other assets on the books, such as loans to employees? Are there other assets that should be liquidated?

Then we evaluated their accounting and determined a selling structure. We asked questions such as:

  • Bookkeeping. Is the company reconciling bank accounts and other general ledger accounts at least monthly? Are monthly financial statements prepared internally or externally? How quickly after a month-end are the financial statements available?
  • Selling Structure. Should we consider an asset sale or stock sale? If a stock sale, is it because significant contracts with customers or vendors cause it to be impractical for an asset sale? Should a business valuation be prepared so the seller has an idea of what the company may be worth? Is it a leveraged buyout with family members or employees? If an asset sale, what assets are excluded? What is the difference in the sale price of a stock sale vs. an asset sale? What are the tax implications to the seller for a stock sale vs. an asset sale structure?


The succession planning evaluation allowed Smith Schafer to provide specific recommendations on building value in the company and determined an approximate value of the company before selling. Value discussions were critical before negotiations with the potential buyer, so the seller did not commit without knowing the facts that could impact the final deal.

The company had control systems and operational policies in place, along with organized books and assets. This presented an organized company and helped sell for a higher price. Greater organizational stability and resilience breeds market confidence and drives value.

Related Posts

The Process of Analyzing Overhead

The Process of Analyzing Overhead

Analyzing overhead is a critical process that businesses undertake to optimize cost efficiency and ensure effective resource allocation. Overhead costs consist of a wide range of non-direct expenses incurred during the production or operation of goods and services.

read more
2023 Business Valuation Considerations

2023 Business Valuation Considerations

In normal times, getting an accurate valuation of a business or other asset can be challenging. There are multiple inputs that must be considered and a value derived based on various assumptions.

read more