If you are a privately held business, family owned or not, failing to plan for succession can have a significant negative impact on the preservation of the wealth you have built. A solid succession plan can drive growth, reduce taxes, set the stage for retirement and enhance the ultimate value of your business.

A primary motivation for business owners is to generate income and build a lasting organization that grows in value. Yet, often, too little effort goes into determining who will take over when the founders are ready to move on or what happens upon death or disability. Whether it is to transfer/sell the business to family, employees or selling it to an outside party, proper planning can greatly enhance the ultimate value realized.

For a business to ignore succession planning, is an invitation for disruption, uncertainty, and conflict, and potentially lessens the value of the business. Planning for a transfer/sale years in advance greatly enhances the outcome of the transaction.

For the family owned or controlled business, the matter of succession may involve emotional personal issues and family conflict. Addressing these issues head on through succession planning is vital.

A business with active owners and passive owners such as investors bring unique challenges and opportunities to the business. A clear and understood arrangement with exit strategies in place can be critical in making these arrangements work for all parties involved.

A good succession plan should focus on the following crucial components:

  • Goal or vision articulation – What is the end game?
  • Strategy articulation – How do we get there?
  • Valuation Assessment – How are we valued and how can we enhance it?
  • Continuous measuring of the business value
  • Planning for unexpected death and disability
  • Retirement Planning – What part can the business play?
  • Entity structure assessment (LLC, S Corp, C Corp)
  • Compensation planning – Owners and others
  • Debt/Equity Planning
  • Business Profitability and Enhancement
  • Management talent assessment
  • Potential ownership change agreement – critical for when family and non-active owners are involved
  • Life Insurance analysis
  • Estate and gift planning
  • If family business, analyze unique family attributes and challenges
  • Significant tax planning
  • Well defined exit Strategies

Succession planning is not a one-time event. The plan needs to be reviewed and the results measured, typically on an annual basis. Goals, timing and circumstances have a way of changing and a succession plan needs to be flexible to adjust accordingly.