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Beginning the Business Succession Process: A Guide for Business Owners Thumbnail

Beginning the Business Succession Process: A Guide for Business Owners

Small businesses are the backbone of our economy, with family-run businesses employing 59% of the US workforce.

Owners of family businesses understand the day-to-day demands of running a business. With all that’s needed to keep the business going, it’s not surprising that many business owners tend to put succession planning on the back burner. 

Family businesses account for 64 percent of the U.S. Gross Domestic Product (GDP) and 78 percent of all new job creation, yet 43 percent of family businesses have no formal succession plan.2 Additionally, only 30% of family businesses survive the transition to the next generation. It is not always an easy or clear path forward. Whether you’ve already slated your successor or are still deciding who is capable of taking over, you understand the importance of preparing for the transition. Unfortunately, time is not always on your side, and neglecting to focus on succession planning can put business owners and their family members at risk.

Why Is Business Succession Planning Important?

The two biggest factors in considering a business succession structure are taxes and business value.


Death is unpredictable, and no matter how uncomfortable it is to contemplate, not having a proactive strategy can lead to a hearty tax bill in addition to the potential loss of control over the final disposition of the company you worked so hard to build. Ensuring your estate has a formal succession plan can minimize estate taxes and provide guidance for how you want the company to be run. Without a clear plan, the operation of your business may suffer due to a lack of leadership or infighting within the organization.

Business Value

You’ve built a valuable business, but do you know the value of the company without you running it? Your successor or successors should understand all the aspects of your business and be prepared to take over in the event of the owner’s death or an unexpected disability. Many business owners minimize the importance of transitioning key relationships with customers and employees. Ensuring that these relationships are loyal to the business rather than to the owner is important in maintaining the value of the business. Failure to communicate and involve your successor can ultimately harm your business and the loved ones the business was built to support.

Business succession planning can seem like a daunting and time-consuming task but having a process can help ease the pain.

The Business Succession Process

The process of business succession is comprised of three basic steps:

  1. Identify your goals
  2. Determine steps to pursue your objectives
  3. Implement the strategy

Identify Your Goals

When you know your objectives, it becomes easier to develop a plan to pursue them. We help our business-owner clients think through questions such as these: Do you want future income from the business for you and your spouse? What level of involvement do you want in the business? Do you want to create a legacy for your family or a charity? What are the values that you want to ensure are preserved once ownership changes hands, perhaps as they relate to your employees or community?

Determine Steps to Pursue Your Objectives

Various financial planning tools and strategies may provide solutions to help you achieve the goals you’ve identified. They may include buy/sell agreements, gifting shares, voting and non-voting shares, establishing a variety of trusts, or even creating an employee stock ownership plan if you desire that employees have an ownership stake in the future. If you don’t have a successor in mind, you may need to prepare the company for sale in the future.

Implement the Strategy

The execution step converts ideas into action. Once it's implemented, you should revisit the strategy regularly to make sure it remains relevant in the face of changing circumstances, such as divorce, changes in business profitability, or the death of a stakeholder.

Keep in mind that a fundamental prerequisite to business succession is valuing your business. Strategic Financial Planning does not perform business valuations, but we can help connect you with professionals who provide that service, and we can serve as a sounding board throughout that process.

As you might imagine, business succession is a complicated exercise that involves a complex set of tax rules and regulations. Before moving forward with a succession plan, consider working with legal and tax professionals who are familiar with the process.

  1. https://familyenterpriseusa.com/polling-and-research/family-business-economic-research/ 
  2. https://www.familybusinesscenter.com/resources/family-business-facts/

This content is developed from sources believed to be providing accurate information, and provided by Strategic Financial Planning, Inc. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered legal or tax advice.