Your Business Succession Plan (“BSP”) – WHY, HOW AND WHEN

As discussed in our last posting, not having a BSP in effect can have some very undesirable results – such as increased tax liabilities and the unnecessary or unplanned sale or closure of a winery.

An example of the potential for a negative result where no BSP is in effect is the sale of the historic Sebastiani Vineyards and Winery in 2008 to the Foley Wine Group. Prior to the sale, the winery had been owned by Sebastianis for over 100 years. Foley Wine Group founder Bill Foley believed that the sale was due mostly to the fact that the current generation (the grandchildren of founder Samuele Sebastiani) simply could not agree on how to run the business. Due in large part to the lack of a carefully thought-out and crafted BSP, the winery ceased to be Sebastiani-owned and instead is now owned by what is essentially a winery conglomerate. A BSP could have specified the details of how the winery was to be run once it was passed down to the current generation.       

Part of planning a BSP requires a winery owner to carefully consider how much his or her own personality contributes to the goodwill of the business. For example, if a winery founder and owner has always been highly involved in all decisions related to the winery and is the “face” of the winery that clients and business associates know, there is a real possibility that once that owner is no longer running the winery, client and business relations will falter. If this is likely, a winery owner should consider bringing in his or her successor(s) while the owner is still running the winery. That way, the successor(s) can become an integral part of the winery, and clients and business associates have the opportunity to get to know the successor and to trust him or her while the original owner is still involved with the winery. This should also help ease any fears about a reduction in quality of the product and/or customer relations once the original owner is no longer there.

Lastly, having a BSP can instill a greater amount of confidence in the winery’s partners, employees and associates or affiliates, as well as lenders and the local community. A BSP clearly shows that a business owner is serious about his or her business continuing on past his or her own involvement, and that everything possible is being done to ensure a smooth transition when the time comes for new ownership and management.

When should a winery owner create a BSP? As early as possible. Once the start up phase has passed and the winery is firmly established, the owner should immediately begin penciling out long term goals and his or her preferred ownership and management structure for the business. The winery owner should consider all aspects of the business and start making decisions about what he or she would like to happen to the business itself and to any real property owned or utilized by the business once he or she will no longer be running the winery. Those details should then be formalized in the appropriate legal documents.

Stay tuned for our next posting, discussing the importance of ensuring your BSP is congruent with your estate planning documents.

– Posted by Ziyad Naccasha and Jeannie Goshgarian

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