How To Master New Business Succession Planning With Stuart Sorkin

Every business owner will exit their company one day—are you prepared? In this episode, I sit down with Stuart Sorkin, a seasoned attorney, CPA, and business strategist, to break down the critical steps of business succession planning. From understanding the six exit paths to maximizing your company's value, we explore how to avoid costly mistakes and structure your transition for financial success. Stuart shares expert insights on tax strategies, retaining key employees, and the role of ESOPs in a seamless business handoff.

We also dive into the impact of poor succession planning, the importance of financial foresight, and why partners must align on a shared vision. With decades of experience in M&A, tax law, and estate planning, Stuart provides actionable advice that can protect your legacy and ensure a smooth transition—whether you’re selling to family, management, or an external buyer. Plus, we discuss the looming generational wealth transfer and why the next decade is pivotal for business owners.

If you’re serious about securing your business’s future, don’t miss this conversation!

Connect with Stuart Sorkin:

If you're a business owner thinking about succession planning, now is the time to start. Stuart Sorkin has decades of experience helping entrepreneurs navigate the complexities of business transitions, tax strategies, and legacy planning. Visit his website t

Right now, you can get an extra 20% off your ticket for the Scale with Stability Summit with my exclusive code CATALYTIC20 at checkout.

Visit scalewithstability.com to grab your ticket—I hope to see you there!

Right now, you can get an extra 20% off your ticket for the Scale with Stability Summit with my exclusive code CATALYTIC20 at checkout.

Visit scalewithstability.com to grab your ticket—I hope to see you there!

Right now, you can get an extra 20% off your ticket for the Scale with Stability Summit with my exclusive code CATALYTIC20 at checkout.

Visit scalewithstability.com to grab your ticket—I hope to see you there!

Chapters

• 0:00 Introduction to Exit Strategies & Succession Planning
• 6:08 The Biggest Mistakes Entrepreneurs Make When Selling Their Business
• 12:21 Structuring Your Business for Maximum Valuation & Tax Efficiency
• 17:13 Retaining Key Employees with Golden Handcuffs & Equity Structures
• 22:18 The Role of Partnerships in Business Growth & Exit Planning
• 27:32 Using AI & Modern Tools to Enhance Business Valuation
• 32:57 How to Connect with Stuart Sorkin & Final Takeaways

Transcript

Dr. William Attaway: 0:37

It is a real honor today to have Stuart Sorkin on the podcast. Stuart focuses on helping business owners preserve wealth, protect their legacy and achieve seamless transitions. A CPA, attorney and entrepreneur with four decades of experience in tax law, stuart integrates legal, tax, estate and M&A strategies into one comprehensive plan. Estate and M&A strategies into one comprehensive plan. As founder of the Business and Legal Advisors, he aligns clients' personal financial goals with effective growth and succession strategies. Stewart holds an accounting and finance degree from American University, a law degree from the University of Miami and an LLM in taxation from Georgetown University. He also co-authored Expensive Mistakes when Buying and Selling Companies and how to Avoid them in your Deal. Stuart, I'm so glad you're here. Thanks for being on the show. Thank you for having me.

Stuart Sorkin: 1:32

I look forward to our conversation today. I do as well.

Intro/Outro: 1:37

Welcome to Catalytic Leadership, the podcast designed to help leaders intentionally grow and thrive. Here is your host, author and leadership and executive coach, Dr William Attaway.

Dr. William Attaway: 1:54

I'd love to start with you sharing a little bit of your story with our listeners, Stuart, particularly around your journey and your development as a leader. How did you get started?

Stuart Sorkin: 2:04

Well, I grew up, was born and raised in Chicago, five blocks from Wrigley Field, which probably made me an eternal optimist.

Dr. William Attaway: 2:14

For a long, long time. I get it. I'm a Cowboys fan, so I can.

Stuart Sorkin: 2:21

You can relate, my father was a real estate developer and entrepreneur. I started working in his office in high school and college. I then clerked for my father's law firm, where I learned what it was like to put deals together as an attorney and decided that this is where I felt I could have great impact. I got my accounting degree, got my CPA while I was in law school, and I chose the University of Miami because it was one of the few programs in the country where you could take courses in the master's in tax program while in the JD program. So I loaded up in tax courses there and then got my LLM from Georgetown because it ended up when I started at GW they didn't have enough courses that I didn't have before that I wouldn't be repeating. Oh my goodness, that's awesome.

Stuart Sorkin: 3:08

And I started my career working for Arthur Anderson and their local tax department in 1981 when the 1981 Tax Act came about and started playing around with the early incarnations of PCs in tax planning playing around with the early incarnations of PCs in tax planning and then was hired by Coopers and Wybrand in 1983 to build their tax application software division, which in four years I grew to an apartment of 13 people, which means I have the unique experience that I've actually an attorney and a CPA who's actually built the business and knows what it's like to deal with deadlines, employees, growth issues and other things. So it allowed me a very different experience. And then I also, when I left there, I went to work for a large Louisville-based law firm in DC and ended up spending the better part of a year and a half commuting to Dallas buying failing S&Ls and banks under the Southwest plan in the late 80s, developed my own models for analyzing bad debts, real estate owned, et cetera, left. That firm went through a meltdown when the principal proponent of the Washington office passed away unexpectedly. Went to work for a boutique securities firm where I read, wrote business plans and read the offerings. That firm had its own set of issues and ended up going back with the real estate business arm of the Louisville firm where I did M&A, estate planning, corporate work.

Stuart Sorkin: 4:39

And then, in 1993, I got divorced and ended up with primary custody of two children and moved my practice at home, where all of my partners had spread to the wind, to various firms and I was of counsel to 13 firms at one point where I was doing tax planning, estate planning, corporate planning, etc. When I went back to rebuild my practice after my son went off to college, I met my co-author, dick Stiglitz of the Men's Communications Group and helped him sell his government contracting business for $25 million, where part of the transaction was I was the trustee of the trust that owned the majority of the company unique situation. And then dick and I decided, as a give back, to write expensive mistakes, uh, which came out in january of 2010, the first month the baby boomers hit 65 and I'm proud to say it still has 4.6 stars on amazon today. That that's awesome. So I work with the concepts that I work with is that what makes most entrepreneurs successful is their belief in themselves, which makes building a succession plan form extremely difficult, because they're no longer the smartest man in the room and they have to learn to delegate.

Stuart Sorkin: 6:00

Always a challenge Understanding the ideas of what are you going to when you are building your business. You're going to sell your. You are going to exit your business in one of six ways, and only one of six ways. You're going to sell it to family. You're going to sell it to management. You're going to sell it to a third party. You become an absentee owner. It gets liquidated or you die. If you don't choose one of the last, one of the first four, the last two will happen. However, the best way to always sell a business is as an absentee owner, because the one thing when you sell the business is you're not there. So if the business can run without you, then you are capable of having a business. You maximize the value of your business. That's so true. And so, looking at the issues of how do you maximize first, where's your business at today compared to where you need to be? If you are looking at an exit in five, seven years, you need to start planning now.

Stuart Sorkin: 6:58

Exit strategy takes a chunk of time, and the first question you need to figure out is what is it that you need from the business? What are you looking for you need to meet with a financial plan. Succession planning is a team sport. You need to meet with a financial planner to find out what your number is, to know you know how are you going to have a successful retirement. Financial firms are really good at that. But I'll tell you a story real quickly about how it can fall apart. And that is a client called me back, oh, eight, 10 years ago, screaming at me, saying you told me when I sold my business, I would never run out of money if I work with these financial planners. And they said and now they're telling me I got to cut my expenses by 20%. What happened? And I calmly said to him well, it would have been really helpful if you told the financial planners your love for Italian sports cars and that you were going to buy three of them at over $300,000 a shot in the first year.

Stuart Sorkin: 7:50

Context is king. So you need, when you are actually doing this kind of financial planning, you need to be honest. What are you going to do? Also, what are you going to do when you're not working anymore? I've seen some very unhappy sellers who thought they hadn't figured out an exit. They need to figure that out. They need to figure it out. And once they figure that out, also, if they're a serial entrepreneur, do we need to do some planning now to take some chips off the table in case the next deal doesn't work so well? What have they done with regard to their estate planning? Do they have kids in the business and kids outside the business? How are they going to equalize? Or do they have family?

Stuart Sorkin: 8:27

And then, if you're not where you need to be, if your business isn't supporting the number you need, how are you going to get there? Can you do it through internal growth or do you have to become a strategic acquirer? And if you're going to become a strategic acquirer, what are you going to acquire? Because acquisition for the sake of acquisition doesn't necessarily add value to your business. How are you going to integrate this process? How are you going to fit?

Stuart Sorkin: 8:51

You're going to need to build your own due diligence checklist that a bank's going to want to see to finance any deal. You're going to have to build a due diligence checklist to make sure that you can integrate any acquisition you have. And how are you going to pay for this? How are you going to pay for this acquisition? Are you going to do it with borrowed money? Are you going to do it with internally generated cash? Can you potentially do it with some form of equity? These are all things you need to think about if you're looking at growth through acquisition.

Stuart Sorkin: 9:18

But probably one of the things that I find most distressing, or one of the big problems that I tend to see, is partners who have stopped rowing the boat in the same direction. They're partners for several years and they're going along, and one partner is growing this thing to sell in five years and the other one looks at this as a lifestyle business. They're not making. They're making decisions, potentially, that are contrary to one another. So one of the most important things that I think is important is to make sure that the partners have built consensus around the five-year plan or the three-year plan, because if you don't have consensus there, you're not going to be able to create measurable, achievable goals with accountabilities for yourselves as the founders or for your employees as people are coming to you.

Dr. William Attaway: 10:05

Your experience is much broader and deeper than a lot of people that I talk to. I mean not only just from the law and the CPA, the tax, the M&A so many different facets of what you bring to the table when people come to you. What are some of the things that you find are the most important steps or traits that they need to have as they're coming to you to talk about succession? What are some things that they can begin prepping now? Whether that's in their mindset, the way they're looking at things, whether it's tactically or strategically, I think there are a couple of things.

Stuart Sorkin: 11:52

First, are you structured correctly? Because since 2017 Tax Act, there is a significant difference in the taxation of corporations versus C-corporations, versus S-corporations or LLCs Taxes Partnership, because C-corporations have a 21% tax rate and deductible state income taxes. Llcs and S-corps the individuals are taxed at their rates, which are 37 plus non-deductible state income taxes, and with a lot of companies, the founders are keeping a chunk of money in the company and only taking out the money they need to pay taxes. Well, that means they're paying 16% more in taxes to have that privilege. Another issue along the same lines is that most people are concerned about quote double taxation when moving to a C-corp. Well, as we talked about, there are four ways you're going to sell your business properly Family, management, absentee owner or third party. In everyone, except for the third party sale, they're generally going to be a stock deal, not an asset deal. Going to be a stock deal, not an asset deal. Therefore, you don't have the necessary problem of the double taxation that people worry about when they sell their business to family or management or become an absentee owner, and the idea here is that you can then also use the C corporation, because a lot of times in the transfers for management and family. One shortfall usually is how much money does the founder end up taking? Because on one hand, he wants to take out as much as possible. On the other hand, if he's forcing his employees or family to take out a large bank loan to pay him back, then he may be hurting the overall success of the business.

Stuart Sorkin: 13:53

The concept here is that we could deal with this in two ways. One, the founder, if he is making more money than he technically needs now, can set up a non-qualified deferred comp plan within the C corporation, which means that any money that stays in the C corporation approximately 75% can be reinvested, versus 60% or less that could be reinvested on the individual level, On top of which any earnings would also be taxed at a lower rate. But with a C corporation you would pick up an additional advantage that a C corporation that invests in publicly traded stocks gets a 50% dividend exclusion, which means the tax rate on reinvested income in a corporation that's that holds stock is 10.5%. Wow. So the idea of building up this cash in the business and as a non-qualified deferred comp plan, initially with the concept that the management or family will buy just a couple of shares from you and the remainder of the stock will be redeemed by the corporation, which means that corporation will be able to redeem you with cheaper tax dollars based on cheaper earnings. So this is one area that we'll get the other another area that I think is, as we talked about delegation, you have to create a management. If you're going to leave, you've got to create a management team. Well, once you create a management team, how are you going to ensure that they stay or that they don't get greedy when the acquirer comes and says, oh, I want this guy and you don't have him locked down to a deal? It could cost you a lot of money to make that deal work or the deal could actually blow up.

Stuart Sorkin: 15:52

So the idea of figuring out the best way to golden handcuff key employees once you have them as part of your business is important, and one of the other things that I think is a discipline that needs to happen is most founders need to figure out exactly all of the things they do that no one else does. Then what I suggest is, when they're building this out, is they take a list across the top of a piece of paper all of those duties. They divide those in half and I'll explain that in a second. Along the other axis they list their employees.

Stuart Sorkin: 16:32

First question is who is the best person to train? The second question is who is the person you most like would like to train? Because I have seen situations where the CEO doesn't necessarily get along well with the CFO. So greatest excuse for avoiding delegation is I don't like working training him, or the training doesn't happen because I don't like working with him. So I'm a big believer that you may take the B person who's from the training standpoint, if he is the better person that you're going to want to train.

Dr. William Attaway: 17:03

That's really good. How often do people come to you thinking they're ready for succession, they're ready for this, and you look at their structure and their systems and you tell them you're not even close. You're at the center of the spotter web, everything connects to you. If we pull you out, you don't have a business. How often does that?

Stuart Sorkin: 17:22

happen and that was one question I forgot to add before early this key, which is what happens after this meeting if you get hit by a bus to your business, what is your disaster plan? And if you don't have a disaster plan for that, that's a real problem.

Dr. William Attaway: 17:37

You know, in my experience that is not uncommon for people not to have a plan for this Entrepreneurs, you know they just they kick that can down the field Right and you know, there are multiple ways of dealing with it that people don't even think about, and I had an example.

Stuart Sorkin: 17:55

I'll give you a quick example. I had a client who had a successful business. He had developed cancer. He went into remission but he was concerned that he would go back and he had two key employees. He knew those key employees didn't necessarily didn't want to buy him out, but he knew he needed them for the business. So what we did was we set up an agreement, that's an employment agreement with each of these key guys that said we're going to pay you all this compensation. However, if I make a planned or unplanned exit from this business, you will stay for 12 months and in exchange for that, I'm going to pay you a bonus equal to, let's say, 50% of your W-2 income as a way to ensure that there's transferable value. So the idea of looking at that as something to consider here's.

Stuart Sorkin: 18:51

Another thing is is your business going to need capital to grow? If you're going to need capital to grow, it's very hard to raise capital for an S corporation, because an S corporation can only have one class of stock and I don't know a lot of investors who don't want to have a liquidation preference if they're investing in your business. Also, smart investors are concerned, one that they'll get hit with phantom income because you won't distribute enough cash to them to pay the tax liability on your growth. But the other side of the coin is they realize that growing the business is being crimped by having to pay up 40% of the cash to pay the investor's taxes versus having them as a stockholder and they get dividends which are tax advantage, and you can tie dividends to profitability, so they only pay taxes when they get money. Investors tend to like that. Indeed, most of us do Right.

Stuart Sorkin: 19:51

And another issue that's also come into play recently is covenants not to compete. A lot of businesses don't need covenants not to compete. They can survive very well with having their employees bound by non-solicitation of employees and clients. But there are some businesses where a covenant not to compete is really important, and today, the only way you can get a legitimate covenant not to compete is on the transfer of equity of stock. So the idea of creating an employee class of equity that says, hey, you're my partner, you're going to grow with me, but if you leave, 20% of the purchase price is going to be paid to a covenant not to compete. It's going to be paid out over the covenant period. That's perfectly enforceable and the idea here is that if you do it right you're also going to cut.

Stuart Sorkin: 20:44

In a normal situation, a change in control bonus for the employee is generally going to be all ordinary income. If you do this right, 80% of it is capital gains. You've just saved the employee a ton of money. So by saving him a ton of money you can say okay, when we sell you're getting 20% at closing. You're getting 60% at the earlier of one year after acquisition, or 30 days after constructive termination, change your job title, move you, et cetera. And 20% is in the covenant not to compete.

Stuart Sorkin: 21:16

You have now delivered to the acquirer an intact management team for one year with a non-compete for a second year. I would say in most cases the acquirer would pay you a lot more money for that. Right. Let's hope so. It's looking at these kinds of things in you know. Another reason potentially is let's say you decide you want to sell to your employees and you want to do an ESOP. A C-corporation as an ESOP means you may never pay taxes on the sale of your business Because if you sell to an ESOP, you then can take and reinvest in what are known as qualified securities, which is basically any publicly traded stock, and you do not pay taxes on the sale of your business till you sell the underlying stock. If you don't need that stock to live on while you're alive, you can pass that stock onto your descendants and they get a step up in basis when you die.

Dr. William Attaway: 22:11

So they sell your business and pay no taxes on it, and this is why the expertise you bring is so highly sought after and so valuable. I'm curious. You have to lead your clients, your business, at a different level today than you did five or 10 years ago, and that same thing is going to be true three, four or five years from now.

Stuart Sorkin: 22:33

Which is why which is why I'm now looking at AI as one of the things that I'm starting to work with a little bit.

Dr. William Attaway: 22:39

So how do you level up your skills, Like how do you stay on top of your game so you can serve your clients at the level that you want to and commit to?

Stuart Sorkin: 22:48

One. There isn't a day that goes by that I try not to learn something. I love that that believe also. There is no such thing as a mistake, as long as you've learned from it.

Dr. William Attaway: 22:58

Yes.

Stuart Sorkin: 23:06

And doing this for 40 years. I can show you the scars on my back from the mistakes I've made, but I probably learned from all of them. That's so good and it's the concept of also, as I said, I'm now using AI to balance out and check out my recommendations I have, I've programmed in my stuff and I have working on other M&A experts programming me in to see to be able to give a more complete package to clients. And it's as I said, it's also the integration issue of have you integrated? I've seen great succession plans from a business standpoint that completely failed from a family standpoint and I've seen family transactions that have that have failed because they haven't done the proper planning from the estate standpoint, sorry.

Stuart Sorkin: 23:48

So you have situations where, as an example, this is that family is in the business and outside the business. How do you equalize if you only have some of the family in the business? Some of that's through cash, some of that. But the one thing you don't want to do is you do not want to put children in a debtor-creditor or landlord-tenant situation. That could negatively impact the business generally. So, as an example, generally the idea is that if you sell the business to a child, that maybe you give the other children a first out equal to the value of the business, before you allocate the remainder. You also may have a situation where you say well, all the kids can participate in the real estate. Well, that's fine, except that means the kids could possibly force either.

Stuart Sorkin: 24:43

Well, let's put it this way the lease would generally have either a right of first refusal or a right of first offer.

Stuart Sorkin: 24:49

The right of first refusal means the children who are not in the business probably will never be able to sell the real estate, because who's going to make an offer and do the due diligence to investigate buying a piece of real estate that they know someone can then match their offer and take it from. This is true, which is why, in family deals, I'm a big believer in what's known as a right of first offer, which says children who are not in the business say hey, brother, we love you but we want to cash out. Fine, we have the property appraised. Son, who owns the business, has a right to buy the real estate at between 90 and 95% appraised value, because there's no broker, that's a quick transaction. But if he doesn't do it, then the family can sell it to whoever they want. So you're giving the family member a first right to protect themselves, but you're not locking in the non-business family members into a piece of real estate for 40 years that they can't get out of Love that.

Dr. William Attaway: 25:47

So you are a continual learner. You are always wanting to learn and grow, and I think your steps in foray into AI are just an example of that. Is there a book that has made a really big difference in your journey that you would recommend to the leaders who are listening? I love Turning Point.

Stuart Sorkin: 26:04

It's a great book, malcolm Gladwell and Turning Point. Just like there will be people that there will be a similar turning point as there is with hockey, as there was with the with pcs that those born between 53 and 56 were the ones who really became predominant, you will see the same things as those who are probably in their early 20s today, who are messing with ai, that generation that there'll be a two or three year period of. Those people will be the prime movers because the older people won't want to deal with it and by the time the younger people get involved, they'll already be more established. That's so good, I agree, on my website and there are videos, there are podcasts, there are white papers on the subject and they can also set up a compliment.

Stuart Sorkin: 27:18

I do complimentary meetings with all initial clients because most of my clients don't know what they don't know about building a succession plan and what size sim said a long time ago is true An educated consumer is my best customer. I love that. But here's the other point is that to make these efficient, I have a two-page questionnaire that I ask the client to fill out that tells me a little bit about the business before I do the complimentary call so I can actually give him some value rather than sitting on the call learning about the business and not being able to react to it. So I try to make these and then usually I follow up the complimentary consultation with some white papers on the subjects we've covered and then we'll do a follow-up meeting with the client, if they want to, before they decide if they're going to engage.

Dr. William Attaway: 28:11

I love that. We will put a link.

Stuart Sorkin: 28:13

They engage, then they will engage me for an initial project, which would be a fixed fee for me to evaluate their business, and I basically have a due diligence checklist that I ask them to send me documents on so I can make some understandings about the business and then come up with a set of recommendations of how I think would best make it work Well.

Dr. William Attaway: 28:35

I will put a link to all of that in the show notes so people can reach out and connect with you. That'd be great, stuart. I'm so grateful for your time today and your generosity in sharing from your decades of expertise in a subject that is incredibly important to entrepreneurs who are looking at succession, who are looking at exit and the steps they need to take now, what they need to be thinking about now.

Stuart Sorkin: 29:09

Thank you so much for sharing today. Projected market value of succession planning between now and 2040 is somewhere between $35 and $70 trillion. If you consider the national, the entire GNP is only $26 trillion. That shows you of what's going to happen over the next 15 years and it's going to make or break the success of the American economy. That transition, and let's do it right, exactly, stuart.

Dr. William Attaway: 29:38

Thank you. You're very welcome. Thank you for having me. Thanks for joining me for this episode today. As we wrap up, I'd love for you to do two things. First, subscribe to this podcast so you don't miss an episode, and if you find value here, I'd love it If you would rate it and review it. That really does make a difference in helping other people to discover this podcast. Second, if you don't have a copy of my newest book, catalytic leadership, I'd love to put a copy in your hands. If you go to catalytic leadership bookcom, you can get a copy for free. Just pay the shipping so I can get it to you and we'll get one right out.

Dr. William Attaway: 30:17

My goal is to put this into the hands of as many leaders as possible. This book captures principles that I've learned in 20 plus years of coaching leaders in the entrepreneurial space, in business, government, nonprofits, education and the local church. You can also connect with me on LinkedIn to keep up with what I'm currently learning and thinking about. And if you're ready to take a next step with a coach to help you intentionally grow and thrive as a leader, I'd be honored to help you. Just go to catalyticleadershipnet to book a call with me. Stay tuned for our next episode next week to book a call with me. Stay tuned for our next episode next week. Until then, as always, leaders choose to be catalytic.

Intro/Outro: 31:00

Thanks for listening to Catalytic Leadership with Dr William Attaway. Be sure to subscribe wherever you listen to podcasts so you don't miss the next episode. Want more? Go to catalyticleadershipnet.