Succession Planning: Begin before the End

In my last article, I started to discuss the importance of estate and succession planning. Today, we are going to dive deeper into succession planning. 

Succession planning, the process of determining how a company will continue once current business owners and/or key employees exit the business, is vital to ensure that you exit your business in a way that meets your goals.

The first step to succession planning is to begin before the end.  In other words, the best way to plan for an exit is to do so with adequate time, which ideally would mean at least five years prior to the desired exit.  

According to the Exit Planning Institute, only 20% of businesses that come to market sell. Of those, 75% of business owners experience profound regret within one year of exiting their business. That means that only 5% of business owners, roughly, sell their businesses and are satisfied with the results!

There are several possible reasons for this.  First, some business owners who think they will enjoy retirement experience a loss of identity or purpose after the sale of their business. Others second-guess if they received full value for their business. Sometimes regret occurs if a business owner receives an unsolicited offer that they felt was too good to pass up, but ultimately, the business was not deal-ready, and if the deal went through, it was after downward adjustment to the acquisition price. Others are unhappy with the impact on their legacy or how employees are treated after the sale. 

Due to these various issues, here are some considerations to prepare for a successful exit:

  • Take time to contemplate what your personal goals are and what needs to happen for you to achieve them. Don’t just have a fuzzy idea that you will golf all day once your business is sold, but really invest some time in understanding what will satisfy you in your retirement years. Also, have a realistic, concrete estimate of future after-tax income needed to support your lifestyle.
  • Reflect on goals for your business as well, in order to protect your legacy. Be ready to consider any potential buyer’s motivations and reputation, as well as the culture of a prospective buyer’s current business if your company is to be merged into another company or companies.
  • Mentor the next generation of leadership. Assuming you are starting this process early enough, assess the impact of you exiting the business. Are there gaps in management that you need to address? Are there relationships with key customers that need to be transitioned to another employee? And is there an existing employee capable of maintaining those key relationships? Not only will assessing human capital aid with business continuity, but it will also make your business more valuable if you have a strong management team in place.
  • Complete a business valuation to gain an understanding of a reasonable range of what your business is worth.  If this is done in advance, areas can be identified for improvement that will drive value higher when the business is taken to market and can be used to assess the desirability of an offer (and cut down on post-acquisition second-guessing.)
  • Lastly, make sure you have a team of advisors to help you to navigate the process and avoid costly mistakes. In addition to the business valuation, this will include tax and legal professionals and a financial planner, as well as an estate planner who can help minimize taxes upon transfer.

In summary, succession planning should be undertaken with enough time to fully prepare for a successful exit. This process requires establishing exit objectives, understanding business value and working on areas that can increase the value of your business prior to going to market. Make sure to seek financial, legal and estate planning advisors to be part of your team so that the financial reward you receive at the time of exit reflects the value you have built in your business.

About Schneider Downs Exit and Succession Planning 

Schneider Downs’ Exit and Succession Planning services are multi-disciplined, fully integrated and holistic exit planning and succession solutions that are customized and designed for business owners by business owners. Exit and succession planning is one of the most important strategies you will need to implement throughout the life of your business, and whether you are ready to start today or in 10 years, it’s never too early to begin the discussions. Schneider Downs is uniquely qualified to provide you with ideas, options and innovative solutions to meet whatever objectives you have in mind.

To learn more, visit our dedicated Exit and Succession Planning Services page. 

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
“Constructing” Your Estate to Meet Your Needs
Planning Considerations for Business Transitions
SD Auto Advisors Continue to Work on Our Own Succession Plan
Succession Planning: Begin before the End
Estate and Succession Planning: Eat the Elephant!
How Your Age Shapes Your Exit Plan
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.