The Importance of Business Succession Plans

The best way to ensure a smooth business succession is to start planning early. Family dynamics and the complexity of businesses makes early development of a business succession plan paramount to the later success of the business.

Family businesses survive into the second and third generation only 30% and less than 15% of the time, respectfully. Business succession plans may help increase these odds. While specifics of businesses may differ, all succession plans should incorporate the same four objectives.

First, the owner should determine the successors and future key players, keeping in mind that some businesses require owners to be licensed. Additionally, the owner should consider family dynamics when choosing individuals for these key roles.

Second, the owner should create a method to transfer the control. This transfer can be gradual or all at once.

Third, the owner should develop a management structure and ensure the help of key employees to aid in the succession plan.

Fourth, the owner should keep in mind his or her personal financial, tax, and estate planning needs during the succession planning process.

Whether a business owner wishes to sell his or her business upon retirement or hopes to pass down the business to family, the best way to ensure the future prosperity of any business is to make a succession business plan early.

See Dean Hanewinckel (Attorney, Englewood, FL.), Planning to Leave Your Business to the Family, Journal of Financial Planning, Apr. 27, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.