Succession Planning Must Be Intentional

By Liz Belcher, CPA
Senior Manager, Tax Services

Too often business owners find themselves backed into a brick wall when it comes to succession of their business enterprise … for most, “their child.” They get so lost in the day-to-day operations of their business that when it’s time for them to step away and perhaps enter retirement, they have no plan in place — or worse yet, the plan they have been carrying around in their brain for years is not realistic nor doable!

To ensure a successful transition, it’s best to plan five to 10 years in advance. Divide your plan into stages, writing goals for each year building up to your succession so it’s ready to activate by then. And be sure to remain in conversation with your partners and shareholders to keep these goals up to date. Seek out others who can give you a “sanity check” on your ideas.

Of course, life happens while we are making other plans. You never know what could sideline you in the future, whether it’s a disability, family tragedy, etc. It’s unpleasant to think about, but this is another reason why succession planning is vital. You need to have a contingent written plan in place.

There are two types of succession for which you need to consider planning — management of your business and equity ownership succession.

If you’re an integral, front-facing member of the business right now, you’ll want to consider who could best replace you and maintain the same sort of rapport with your team members, customers and other stakeholders. Maybe you’re keeping the business in the family, so which one of your loved ones takes after you the most? Or maybe consider a family member with a different touch who can tap into new markets and different demographics.

In regard to equity ownership succession, the first thing to determine is what type of transaction it will be: a total outright sale for the entire enterprise or a portion of the equity. Typically an outright sale occurs when the owner is looking to retire or start an entirely new venture. If they want to stay involved but move out of the hot seat of leadership, they might choose to sell only a part of their equity.

The next question is to whom the business will be sold. While sale to an outside party is common, other possibilities include a buyout by the current management, merger with another company, acquisition by an Employee Stock Ownership Plan (ESOP) or a similar vehicle in which the employees become the owners. You as the business owner should explore all options and decide what fits your situation the best. Sometimes a key long-term competitor can be an option.

Whatever you wish to do, make sure you start planning sooner rather than later. Don’t rush into retiring or transitioning away from your business. Give yourself plenty of breathing room to allow for the smoothest possible segue into the next chapter of your business and life outside of it.  You will maximize your value received and make other stakeholders very satisfied.

If we can assist you further with your business or personal affairs, please contact Liz Belcher at (317) 613-7846 or email her at