Leaving a business in capable hands can take years of forethought, planning, grooming and communication. Unfortunately, far too few business owners strategically prepare for their intended departure from the business. 61% of wealthy investors expect business succession planning advice to be a component of their financial plan, but only 6% have it included as part of their plan.1 A properly structured succession plan can help you understand the value of your business, preserve that value and its growth potential, and pass it on intact to leave a legacy.

According to a recent survey, 58% of business owners don’t have a succession plan.2 This lack of preparation is a major reason why only 30% of family businesses survive as they transition to the second generation, only 12% are still under the third generation, and only about 3% operate into the fourth generation or beyond.3

The successful transition of a business depends on several elements: the legal structure must suit the strategy, the strategy must address the interests of heirs, and the successors must be prepared and able to lead the business. While a comprehensive plan will address these and other points, below are five best practices business owners can follow as they plan their succession.

1. Start early

It’s never too early to formulate a succession plan. A thoughtfully constructed succession process can take several years. The longer you spend on succession planning, the smoother the transition process will likely be. Revisit the plan periodically to make sure it remains relevant to your current needs as your business continues to grow over time.

2. Assemble a trusted team of advisors

A succession plan will involve legal and financial aspects that require the expertise of an attorney, an accountant, a financial planner and an investment banker. An experienced wealth advisor can help you assemble a team of specialists and craft a well-structured plan that can make a profound impact on the value of your business and help you achieve your objectives.

3. Involve family in discussion and encourage input

When transitioning a business to family members, if the family or other heirs don’t agree with its terms or have input in the process, the plan stands little chance of success. Create an open dialogue among family members. Pay close attention to the personal feelings and expectations of everyone concerned as well as the goals of the business to eliminate conflict.

4. Choose business successors wisely

Just because they are your children does not mean they are qualified or interested in leading your business. Examine the strengths of all possible successors objectively and think about what’s best for the business. Separating management from ownership can be very constructive. Your business is an asset and your primary objective should be to maximize its value, not serve as an employment vehicle for family members.

5. Define your role and exit strategy

Start by separating your responsibilities as CEO from your family responsibilities and your personal goals. These three domains often conflict so try to gain clarity on these objectives and responsibilities.

Define your succession objectives: will you transfer ownership to the next generation or will you seek liquidity through a thirdparty sale or other liquidity mechanism? If you expect to ultimately seek liquidity, ask yourself the following questions: what do I want my business to be worth when I exit, what are the attributes that will command such value, how much longer do I want to own the business, and can I make the changes needed to make the exit value match my expectations in that timeframe? If the answer is no, you will have to adjust your expectations or implement steps to grow the business into your target value.

Finally, learn about the various liquidity mechanisms available in today’s markets. Transferring ownership and gaining liquidity do not necessarily mean giving up control. Recapitalizations and teaming up with private equity sponsors are common strategies that allow owners to gain partial liquidity and continue growing their business with an institutional partner before they pursue a final exit.

For more information, contact Steve Sherline at stephen.sherline or visit to learn more about our wealth planning options. 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. Certified Financial Planner Board of Standards Inc. owns the certification mark CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. 1 © Spectrem Group – 2019 Defining Financial Planning report. Survey of wealthy investors with $5 mm - $25 mm in net worth, not including their primary residence. 2 “The Power of Planning,” Wilmington Trust. Available at: 3“Succession Planning,” Family Business Institute website (

Return to Index

For reprint and licensing requests for this article, CLICK HERE.