Key factors for business succession planning

Rosemarie Wilkins, MTax, CEPA®, CFP®, Senior Wealth Strategist

A well-structured business succession plan is essential to achieving your goals down the road. Whether you want to keep the business in the family or sell to outside buyers, the journey can be long and rewarding.

Key takeaways

Start planning early

Succession planning should begin years in advance to allow time to build a transition team and prepare the business.

Balance personal and business goals

A successful plan considers both the owner’s financial goals and the business’s financial health.

Evaluate transition options carefully

Whether keeping the business in the family or selling to an external buyer, each path requires thoughtful planning and preparation.

You’ve worked hard to build your business, and you don’t want to leave its future to chance. A business succession plan can help ensure your goals are met and your business is positioned for success after your exit. Read on to explore key succession planning considerations, including factors to evaluate when deciding whether to keep your business in the family or sell to an outside buyer.

Succession planning considerations

There are several key factors that can help guide effective business succession planning:

Timing: A plan should start taking shape years before your departure or change in role, and it’s important to build a transition team. With the goal of maintaining company performance, a successful succession plan serves as the blueprint to help guide ongoing operations, including hiring and onboarding new employees and retaining the existing workforce.

Personal goals: You've worked hard for a financial reward that will allow you to fund your next venture, whether it's starting a new business, charitable giving, retirement or other personal pursuit.

Family financial security: Some family members may be critical to succession, while others may not be heavily involved. Achieving fairness for everyone can be complex. Transition can be controversial, but there are ways to help improve communication and minimize disagreements and power struggles.

Risk management: Even for companies with substantial assets and loyal customers, lack of liquidity can complicate the transition process. A strong succession plan accounts for this by helping balance liquidity needs with the ongoing health of the business, allowing for wealth extraction while supporting long-term competitiveness.

Selling vs. keeping your business

A critical question in business succession planning is whether to keep the business or sell it. Here are some factors to keep in mind as you look to select trustees and successors.

Keep the business in the family

The handoff process can be complex. A well-structured succession plan can help families preserve their wealth across generations. This may include mutually beneficial, tax-efficient business succession planning strategies for transferring ownership, whether through sale or gifting to heirs.

A key question is who will take on leadership. A successful transition depends on identifying and preparing successors in advance. If several family members are involved, clarifying roles and reporting structures can be nuanced. Effective communication during the succession planning process can help set expectations and define responsibilities.

Sell to outside buyers

Evaluating your options takes time. You may consider several paths, including an Employee Stock Ownership Plan (ESOP), selling to an outside buyer or an Initial Public Offering (IPO). A well-developed succession plan accounts for the needs of the business, market dynamics and your personal goals.

Preparing for a sale has many dimensions. Proper valuation of your company is a vital succession planning strategy tool, and a transition team can help provide an objective assessment. As the transition approaches, leadership should be clearly defined and successors properly managed. During this period, talent retention becomes critical.

Getting the advice you may need

After working hard to build your dream, a strong approach to business succession planning can help you prepare for the next phase of your life. With options available and important decisions to make, starting early can improve the likelihood of a successful transition.

The complexities of a business succession plan often require guidance from a team of experienced professionals.

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