Succession Planning as a Business Owner: Three Things to Consider for Smooth Transitions 

September 1, 2023

Running a business comes with its own inherent list of challenges and rewards. On a daily basis, you are often faced with decision-making opportunities that can affect the future of the company, including current tax liability and financial health. However, there’s one decision that impacts the future in more far-reaching ways that is often overlooked by most business owners until it comes up (often urgently): Succession Planning

If you haven’t seen the HBO Series Succession, you may not be aware of the drama and many pitfalls that can occur in succession planning, especially as a business owner. Family drama aside (it is a TV show, after all), there are specifics you should consider when addressing your business’ next chapter. Whether you want to retire or are including succession as part of your estate planning process, here are three key factors for you to think about:  

1. Family Involvement—Whether or not your family is a part of your business is a highly personal decision. When considering the transfer of ownership of your business, it’s most important to take experience and capability into consideration. For example, if you intend to transfer your business to a family member, it would be best to begin mentoring them as soon as possible in order to secure a smooth transition, both for your employees and for your vendors/customers. In short, a family successor should be someone who objectively has the education, training, experience and temperament to fill your shoes. Depending on your industry, it may take years for this individual to be properly prepared to take over. 

Additionally, if your succession plan and estate plan are linked, you will want to create a clear and legally defensible ownership transfer plan. Furthermore, if you intend to retire, you will want to ensure that your retirement is adequately funded by the transfer of ownership. Finally, if the succession is part of your estate plan, you may want to consider how the company’s ownership is divided, among both the family members who participate in the business and those who don’t. Having an estate plan that equitably divides your wealth often leaves less room for contention and debate among heirs. 

2. The MarketIf it is unlikely that you’ll transfer ownership of your company to a family member, you will probably want to sell it. Retiring and selling your company generates different questions than transferring ownership as part of estate planning. However, both need to take the market into account. The main question to ask is: Is there (or will there be) a market for your company when you’re ready to leave, or when a sale is triggered by estate planning? 

If mergers and acquisitions are relatively common in your industry, you may have little to worry about. But if companies like yours tend to be difficult to sell, you (or your heirs) might be in for a long and frustrating process. To improve your odds, you can start developing a list of potential buyers long before it’s time. Potential buyers can include: competitors, business associates, employees, and private equity firms, to name a few. By compiling this list early in the process (and keeping it up to date), you give yourself (or your heirs) a better chance of securing a smooth transition after transferring ownership. 

3. Structuring the Sale or TransferUnderstanding that the structure of the sale or transfer is paramount to a smooth transition, you will want to work with an attorney, CPA, and/or other applicable advisors and professionals to transfer ownership in a legally secure, tax-smart manner. You will also want to ensure that any transfer takes into account your retirement and/or estate plans. This is especially important if you are transferring ownership to a family member. 

If you are choosing to sell your company (or ownership shares) to someone outside your family, to your employees, or to your business partners (if you have them), you will need to structure the deal in a way that takes into consideration the various rules and complexities that come with each scenario.  

All of these scenarios—including a transfer of ownership to family—will have the most successful outcome if the structure of the deal is clear, concise, and properly planned and executed by professionals. This is especially true if you are selling your company in order to retire and need to secure your retirement income both now and as part of future estate planning. 

Stepping down from a business you have created or carried forward is not a decision to take lightly. However, it can be much easier to step down if you feel everything has been properly accounted for and you are leaving your company in the best possible situation (and hands) for generations to come.  

If you need help securing your company’s future, please reach out to your CJBS team member today to review your existing plans or for help creating a new succession plan.