What will happen to your business when you leave, retire, or are no longer around?

Read Time: 3 Min
The future of your business after you move on, whether planned or not, can be determined for the most part with discussion, preparation, and guidance. But without proper arrangements, there’s no telling who will benefit from all your hard work.

The answer to that question may depend on whether you leave on your own terms (when and how), or if an unforeseen event causes your departure. And most importantly either way what, if any, preparations you had taken.

It takes time, talent, and determination to start, run and grow a business, but it can be almost as daunting to determine what to do whenever you step back. The decisions you make will have an enormous impact on the business, your legacy, your family, and your financial future.

No one knows what tomorrow will bring, but you can prepare for it, though most don’t. According to a recent PwC study, only 34% of surveyed family businesses have a robust, documented and communicated succession plan in place. Fortunately, a discussion with your Huntington Private Bank advisor could help ready for the unknown–and the sooner the better.

Selling a business checklist

If you’ve decided to transfer by selling a business or passing it down to relatives or a third party, there are key factors to include as you plan:

  • Timing: A plan should start taking shape years before your departure or change in role
  • Personal goals: Settle on a payoff that will allow you to finance your next stage in life
  • Family financial security: Transition can be controversial, but there are ways to minimize issues
  • Risk management: Calculate potential wealth extraction while helping to keep the company vital

Consider this hypothetical case of the Johnsons, who are just starting to think through their next steps.

  • 56-year-old Jennifer is owner and CEO of Johnson Fittings Corp
  • Her husband, 54-year-old James, is the finance manager
  • They plan to retire at age 60
  • Their daughter, Maria, is the operations manager, who may want to take over the business, but her intentions are unclear
  • Jennifer has previously told would-be buyers that her company is not for sale
  • The Johnsons worry about what might happen to their employees if they sell the business

What should they do with their business as they prepare to retire?

Business succession options can be narrowed down into three basic courses of action:

Wait and see

To wait and see is another way of saying, “Do nothing and think about it later.” One of the biggest risks of this option is that it could force you to make a quick sale if something unexpected happens, which could reduce your financial returns and negatively impact your employees and the community. Given the potential negative repercussions, it’s prudent to just cross this option off your list.

Internal sale

An internal sale often refers to transferring ownership to a family member in the next generation, which in the Johnson’s case could mean selling or gifting the business to Maria. Internal sales are also sometimes made to key employees. Selling to a family member or key employees would often be done through an installment sale over a number of years. If they choose to gift Maria the business, they should consult with their tax advisor to mitigate any potential gift or income tax consequences, such as the loss of a step up in basis that would otherwise occur if Jennifer held it until death. Another internal option is establishing and selling the stock to an Employee Stock Ownership Plan (ESOP), which has income tax advantages and also rewards employees by giving them an ownership stake in the company.

External sale

An external sale involves selling to a third-party, such as a family office, private equity, or a competitor. Family offices tend to employ a buy-and-hold strategy and often are not inclined to replace management, which could bode well for employees.

The more time you have to plan, the more choices you have and the more likely you are to achieve the best possible outcome for you, your business, your family, and your legacy.

Edwin Morrow, CFP®
Wealth Strategist, Huntington Private Bank®

When it comes to a planned business succession, time may be your friend. The more time you have to plan, the more choices you have and the more likely you are to achieve the best possible outcome for you, your business, your family, and your legacy.

Selling to a competitor would require disclosing strategic information, which could be risky if the deal falls through. If Jennifer and James were to pursue this path, they would want to have their attorney draft non-disclosure and non-solicitation agreements for the potential buyer to sign.

Your decisions about your business will likely have a profound impact not only on you and your family but also on your customers, your employees, and your community. You didn’t work as hard and long as you did to build a successful business only to rush to the exit. Take steps now so in the future you can look back and be satisfied with the actions you took.

Prepare for the unexpected

The Scout Motto, Be Prepared, is applicable to business owners, too. The truth is that if you don’t take into account what might happen to you–including unforeseen tragic events–somebody else, including the courts, could wind up making choices for you. Failing to plan could result in your family fighting red tape (or each other) to have a say in the business’s future at an emotionally devastating time.

The need for such planning isn't restricted to older people. I recall the tragic story of a man who developed a terminal illness at the early age of 40. In this case, the man had time to plan, making sure his wife could direct his medical care when the time came, had full access to his financial assets, and understood his end-of-life wishes.

As he became less and less capable, she had the tools necessary to make crucial decisions on his behalf and for the business’s future.

What’s next?

Your personal financial goals and vision

Discussing the future with your family and charting out what reasonable achievements can be sought may give you the direction to proceed. Because you may not be around to reach your goals, consider those who are like-minded and could help.

Your key employees

If you have valued employees you feel deserve special consideration, perhaps an ESOP is an answer. Typically, though, a workforce of at least 20 employees with relatively low turnover is needed make ESOPs more plausible. Issues to weigh are the costs of the plan relative to benefits, is there a ‘successor management,’ and is the business profitable enough to pay for the costs of buying shares. And just as importantly, are there company staff willing to spend the time to learn about and manage ESOPs?

Understand the value of your business and tax implications

Few may value your business as much as you, especially if you founded and built it from the ground up. Last but not least, calculating its true value may give you pause, or confidence. Either way, its value, and the complex tax implications that come with it, may be clarified with the help of a Huntington Private Bank advisor.

Getting the advice you may need

Huntington Private Bank advisors understand your responsibilities as owner and can help you determine your options as such in the event you’re no longer owner. Connect with your Huntington Private Bank advisor to outline a plan that can help alleviate your concerns. To learn more, please contact your Huntington Private Bank team to see how we can help, or find a Huntington Private Bank Office near you.

Related Content

pwc. May 16, 2023. “PwC’s 2023 US Family Business Survey.” Accessed Jan. 30, 2024.

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