Business Succession Planning

What happens to your business when you’re gone?

 Debbi Conrad  |    March 08, 2007

Brokers and other business owners may devote a lot of time and effort to daily operations and planning for the development and growth of the business. They may even have implemented procedures for the continuation of the business in the event of a natural or man-made disaster such as a tornado or terrorist attack (see “Are You Ready … When Disaster Strikes? Prepare Your Business for Emergency,” in the September 2005 edition of Wisconsin Real Estate Magazine online at But many business owners avoid or neglect planning for the future of their business in the event of a crisis such as their illness, disability or death. Such planning is equally important when a business owner retires or if an irreconcilable rift develops between co-owners.

If a broker intends that his or her real estate brokerage company continue after he or she no longer wishes or is able to participate, the greatest gift that the broker can give to his or her family and those who work in the business is to have a business succession plan. If tragedy strikes and no plan is in place, the company may be left in a state of disarray, clients and customers may panic and agents may jump to another company. Without a blueprint for action and continued leadership, the orphaned business may flounder and can quickly lose what was built through years of hard work.

Business succession planning requires consideration of future ownership and operations. Each business is unique, so the assistance of an attorney, CPA and possibly other financial planners familiar with real estate business owners is mandatory. Many exit plans involve some type of buy-sell agreement and many business purchases are funded with life insurance.

Buy-sell agreements outline who the successors will be, what parts or aspects of the business will be transferred, and when and how the transfer and succession will take place. The leadership succession and ownership transfer process is typically triggered by an event such as an owner’s death, retirement, disability, termination from the company or major disagreement with other owners. In a retirement situation, provision may be made for a gradual winding down of the owner’s involvement, especially in a business like real estate where some client relationships may depend upon the owner’s presence. Customers and clients will benefit from a gradual transition over to the next leadership generation.

Valuation of the business or establishment of a formula for calculating a purchase price will likely also be required as part of the succession plan. Valuation of a real estate business may be based on the value of the assets, the value of the income flow or a combination of the two. Many brokers are shocked to discover that their real estate business is worth very little in the open market, a good reason to plan for the transfer of the business to family members or brokers and managers within the company.

Licensing questions will also arise if there is no mechanism in place for the seamless continuation of business. Wis. Stat. § 452.12(2)(a) provides that a license may be issued to a business entity if the business entity has at least one business representative licensed as a broker. A “business entity” is an organization or enterprise, other than a sole proprietorship, including a corporation, joint venture, limited liability company (LLC) and partnership. A “business representative” is a director, manager, member, officer, owner or partner of a business entity. One simple approach to help ensure continuity of the licensed business entity is to have at least two business representatives with broker’s licenses so that if tragedy befalls one, there is another licensed broker to sustain the business license.

For more information and suggestions, see Robert Freedman’s article, “Moving On, Smartly,” in REALTOR® Magazine Online at

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