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Saturday, Jul 13, 2024

CFO Awards 2018 Nominees: Solving the Succession Puzzle – Tips to a Successful Transition for Your Business

One of the most significant risks to the future of any business is often overlooked: What will happen when the ownership or leadership changes? Unfortunately, many business owners put off succession planning— to the detriment of family, employees, and the business itself.

According to the Family Business Institute, only 30% of family businesses pass successfully to the second generation. Still fewer—only 12%—survive to the third generation. Much can happen without an effective, up-to-date succession plan. One recent example is a company that had an outdated buy-sell agreement when a majority shareholder unexpectedly died. The agreement provided for the deceased shareholder’s estate to receive an amount that far exceeded the actual market value of the business, which had declined due to economic conditions. The company did not have sufficient liquidity to pay off the deceased shareholder’s estate and it was required to obtain a business loan just to meet the obligation.

Unfortunately, this scenario is not rare. According to a recent survey, 50% of business owners claim to have a succession plan, but only 16% have a discussed and documented succession plan in place.

Ensuring a successful transition for your business is a critical goal for any business owner and one that can be achieved with planning and communication. With the guidance of an experienced wealth strategist, you can begin to identify and clarify your objectives. Once these objectives have been articulated, the next step is to analyze the business’ current situation and devise appropriate wealth-transfer strategies as each business structure poses unique tax, operational, and legal issues. A wealth strategist can also assist you in the following ways:


Owners are focused on the day-to-day of running their business. They’ve rarely ever transferred or sold a business. Wealth strategists regularly work with business owners who’ve gone through this process, and benefit from hearing the lessons that other owners have learned (some the hard way). The benefit of this accumulation of knowledge can assist business owner clients with taking this view and seeing both the good and the bad of what the owner will go through in their transition process.


Buy-sell agreements and provisions should be reviewed to see if they align with the owners’ objectives, making sure that all desired “triggering events” are covered, along with the terms of a buy-out, and whether it is mandatory or a right of first refusal. In addition, it is important to evaluate loan covenants to make sure that any proposed succession planning will not adversely affect any loan covenants for loans that will stay in place after the transition.


A wealth strategists can help match business owner clients with valuation experts that can help both value the company with anticipation of a sale, as well as with anticipation of transition to family. The wealth strategist can help the client understand the process and understand what the valuation report really means.

Life is unpredictable. If you’re passionate about your business, you should be equally passionate about protecting it in the event of your death or disability. While it may seem overwhelming, when you work with an experienced wealth strategist succession planning doesn’t need to be daunting. Put a plan in place, and you can enjoy the peace of mind of knowing your business objectives will be addressed, both now and in the future.

For more information, please contact Steve Sherline, National Private Wealth Management Executive for The Private Bank at Union Bank via stephen.sherline@ unionbank.com.

The foregoing article is intended to provide general educational information about business succession planning and is not considered financial or tax advice from Union Bank. Wills, trusts, foundations and wealth planning strategies have legal, tax, accounting and other implications. Clients should consult a legal or tax adviser.

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