Problem - a Proper Succession Plan

According to a recent national survey, 25% of senior generation family business shareholders have not completed any estate planning other than writing a will. Although 81% want the business to stay in the family, that may not happen without proper succession planning. At its most basic, a succession plan is a documented road map for your partners, heirs and successors to follow in the event of your death, disability or retirement. It can also be used to orchestrate the sale of your business. This plan can include a program for distribution of business stock and other assets, debt retirement schedules, life insurance policies, buy-sell agreements between partners and heirs, division of responsibilities among successors, and other elements. The plan also may establish the value of the business.

The starting point in the succession planning process is to clearly establish your goals and objectives - in other words, you need to first know what it is you want the plan to accomplish. After all, if you don't know where you're going, how will you know when you get there?

Some key questions you need to answer:

  • Is there someone capable of running the business once you step down?

  • How much control of the business do you want to maintain?

  • Are there key employees you want to retain?

  • Are there sufficient assets to pay the estate tax, equalize the estate, and keep the business?

  • How much money do you need to reach your financial goals?


Clarifying your goals and wishes is important, but it's not enough. You need to take the time to communicate your vision with your family, business partners or key employees. With your intentions now clearly understood by those most affected, you're ready to begin thinking about the actual succession plan.

As you begin your planning, keep in mind that an effective succession plan is, above all else, flexible. Business, family and health situations can change at any moment. You should be able to easily modify and amend your plan to adapt to any changes that lie ahead.

Consider these examples:

  • After 20 years in business with you, your partner decides that it's time to write his long-postponed novel. He needs his share of the company assets to move himself, his family, and his computer to Tahiti. Do you have a buy-sell agreement in place that will enable the stock purchase without bankrupting your business?

  • For years, your daughter has been an active player in the business. She's come up through the ranks and her last three deals netted a hefty profit for the company. Now it turns out your youngest son wants in, too. His legal background will be a big plus. But how will you divide company shares and leadership responsibilities between them?

  • What happens if someone on your management team is suddenly disabled and most likely won't be returning to work?

  • What if your partner gets a divorce and the settlement calls for the spouse to receive a portion of your joint business assets?

  • What if you need an infusion of capital to take advantage of a sudden expansion opportunity?


The fact is, the only constant in life is its unpredictability; so you need to be prepared with a plan that can help you meet the challenge. Make sure that, regardless of whatever situation might arise, your business is structured to handle unexpected changes and opportunities. With the guidance of qualified financial and legal professionals, you can - and should - immediately activate a plan to help you meet the challenges of tomorrow.

Lastly, you'll need to decide who will take the reins once you relinquish them to become chairman of the board, or perhaps leave it all behind for a life of leisure. But is there really anyone out there who can run your business with the unparalleled style and acumen that you've brought to it? There won't be, unless you're there to tell them how. By grooming a successor now, you'll be able to impart the knowledge and experience you've accumulated over the years, and be assured of a continuity of leadership style and business profitability after you're gone.

Picking a successor can be a minefield, especially if you have a choice of equally qualified children or employees. With more than one child involved in the business, you must decide which one gets to be boss and which merely get voting stock. Further, how will you divide assets equitably among your heirs if some are active business participants and others are off in their own careers?

The distribution of money and assets among siblings can be a highly divisive issue, even in the happiest of families. Your challenge: divvy up business responsibilities and assets in a way that allows your business to survive – and preserves family harmony.

Even if you have no family members who are capable of handling your business after your departure, you may already have a number of capable employees you’d be pleased to pass the reins to. Once you've chosen your successor from among them, the only hitch is keeping the others interested, loyal and productive, despite being passed over.

No likely candidates in your employee pool? That's a warning sign you shouldn't ignore. Your management style may be hampering employees from turning into leadership material. Or, your hiring and training programs simply may not be doing the job.

It is difficult for any business owner to let go, but letting go and training the next generation of leadership is the only way to protect your company's future. Be sure to make career advancement and management training programs a top priority.