Retirement and Transition Plans

Succession planning: A timetable for passing the torch

Plan ahead to help your small business achieve long-term success.

Entrepreneurs pour time, money, and energy into their businesses, but only 33% of family-owned businesses protect themselves with a written succession plan, according to the Curchin Group, a New Jersey-based accounting firm specializing in family-owned enterprises.1

"There's a lot of sweat equity involved in businesses. Why just let it fall by the wayside?" says Jeremy D. Miller, a Business Transition Strategist at Wells Fargo.

Even if your tenure as owner is far from over, plan for your company's future now to help it succeed long after you leave.

First steps: Start establishing your succession plan

Creating your initial succession plan can take many months. Start with the following:

  • Articulate your objectives. Set your goals early and reflect annually on your goals. What is your long-term vision for your company? What are your personal financial and legacy goals? Who do you want to own your company when you exit? Answering these questions will help determine your strategy for exit.

  • Determine your roles and responsibilities as owner. You're involved in every aspect of your business, and you probably do more than you realize. Focus on the qualities that have allowed you to succeed, and consider them in your search for your successor.

  • Get a valuation. Knowing the value of your business will be critical in choosing a successor you can trust to take it over and at what price you're willing to part with it. Does your potential successor have enough money to buy the business outright? If not, how long will a gradual acquisition of ownership take? The value of your business might affect your exit, so have it appraised.

Next steps: Make your final business succession decisions

With your ideas in order, you're ready to tackle the logistics. Take the requisite time to consider these possible scenarios:

  • Sale to a third party. A little over 50% of business owners decide to sell their business to an outside party (strategic or financial buyer).3 If top dollar is your primary goal, this is usually accomplished through a sale to a strategic buyer. Strategic buyers are already in your industry and typically will not need to keep all of your employees as there will be overlap from your business. A financial buyer has the financial resources and sees your business as a good investment. They generally keep all of your employees on staff and will ask you to continue running the business from several months to a few years as they get up to speed on your business.

  • Consider a family member. Are you looking to leave the business to your children? It's more the exception than the rule: Only 30% of family-owned businesses survive to the next generation, according to the Family Business Institute.2

  • Employee Stock Ownership Plan (ESOP). Do you want to reward your employees by giving them ownership in the business through a qualified plan? This strategy may be an option if top dollar for your business is not your primary goal and/or you want to reward your employees as a part of your exit plan.

  • Consider a group of employees. Is someone on staff a perfect fit? Or does selling to an outsider seem right? Investigate every option.

  • Prepare for emergencies. You may want to pass on your business when you retire, but that's not always possible. Create a contingency plan in case injury or death forces your company into an emergency transition.

  • Weigh the tax consequences. Be aware that your succession decision impacts your personal finances and retirement. What are the tax implications in the case of a sale, death, or divorce? Consult your lawyer or CPA.

  • Plan for a comfortable retirement. What will your cash flow needs be during your retirement years? How large of a safety net will you need to have peace of mind? Enlist your lawyer and financial advisor for guidance.

  • Get it in writing. Create a formal plan that includes your successor, exit strategy, and timeline. Miller also recommends adding a communication strategy for telling employees, suppliers, and customers about the transition.

Remaining time: Implement your business succession plan

With the plan in place, the hardest part is behind you, but that doesn't mean your succession is all set. The following steps — completed over the rest of your time as owner — will help ensure it works:

  • Train your successor. Mentor the chosen candidate in key skills. Teach your successor about your important clients, leadership style, and goals for the company, in addition to any technical expertise.

  • Revisit the plan. Do it annually. "It doesn't have to be a drawn-out process, but you should check that you're still comfortable with your current succession strategy," says Miller.

By thinking ahead, you'll help ensure your succession plan is as timely and thorough as possible, which in turn gives your company its best chance at long-term success — and helps give you peace of mind.

Learn more about Wells Fargo Business Advisory Services.


1 "Infographic: Top Family Business Statistics You Need to Know." The Curchin Group. (2013)

2 "Succession Planning." Family Business Institute.

"Know and Grow the Value of Your Business: An Owner's Guide to Retiring Rich." Tim McDaniel.