Retirement and Transition Plans

Succession strategies: Understanding your transition options

Start planning now to secure the future you want for your company.

Published: June 10, 2019

Most business owners understand the importance of a strategic plan — the roadmap for where their business is headed in the next three, five, or 10 years. But what happens when you, the business owner, are ready to leave the driver’s seat?

Whether you choose to leave the business to pursue a new venture, retire, or handle an unexpected life event, a plan for passing the leadership torch is essential to set up your business — and its future leaders — for success. Here’s how to get started.

Get all the succession planning pieces in place

When is the best time to start planning for succession? The answer is always “now.” Start by pulling together some key details:

  • Document your business and personal financial goals. How do you want the company to grow, both when you are at the helm and have stepped away? How involved do you want to be after your exit? What kind of income will you need in retirement?
  • Outline your specific roles and responsibilities as an owner. This list should include everything from employee management to overseeing marketing initiatives. Your successor(s) will appreciate the detailed picture of what they’re agreeing to take on.
  • Get an independent appraisal or valuation of your business. The objective perspective on your business value will help you pragmatically establish a price for buyers and plan for managing the sale’s proceeds.
  • Assemble a team of professionals to help you plan for succession. Specialists like your accountant, attorney, investment advisor, and others can work with you to manage logistical and financial complexities and give you peace of mind by ensuring your plan is sound.

The big decision

Of course, you’ll also need to determine to whom you’ll be passing the mantle. Here are some of the most common succession scenarios — plus considerations for how each may make sense for you:

  • Keeping the business in the family. If you plan to pass on the company to a relative, talk candidly with them about the realities of your life as a business owner so they understand what financial considerations are also important to discuss upfront. If you’re going to sell, ensure they’ll have the necessary funds to buy you out. If you’re planning to hand the business down, work with a professional to understand the best way to get the liquidity you need and minimize any tax liability for you and your heirs.
  • Selling the business to co-owners, partners, or existing management. Looking to your current leadership team for successors who understand your vision, know how the company works, and are already invested in its success can be an effective approach to transition. Consider letting the change happen over a period of time, remaining engaged as you gradually pass on ownership responsibilities. Work with your team of advisors to determine the right price, how much liquidity you need immediately, and the amount of funds the business needs to operate as your buyers pay off the sale.

  • Selling the business to a third party. Setting up your business for acquisition by a colleague in the industry, a similar business, or a private equity investor may be a lucrative strategy. As you consider your options, keep your desires for the business front and center to make sure they align with the potential buyer’s plans. For instance, a buyer may have plans to eliminate some of your employees, or they might want you to stay involved well past the transition. Throughout this process, be sure to engage an investment professional to help plan for making the most of your proceeds from the sale.

Revisit your succession plan every year

Planning early gives you plenty of time to think through how the plan will work and adjust as necessary. Include a review of your succession plan in annual planning. As your business evolves, consider if and how you should update your transition strategy.

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