Most business owners spend years building their companies with dedication, sacrifice, and endless hours of hard work. You’ve likely poured your heart and soul into creating something meaningful that provides for your family and contributes to your community. But there’s an important question many business owners avoid: what happens to your business when you’re no longer able to run it?
Succession planning is often the conversation business owners postpone until tomorrow – a tomorrow that sometimes never comes. Whether due to unexpected illness, retirement, or other life circumstances, having a clear succession plan isn’t just good business practice; it’s essential protection for everything you’ve built. In this article, I’ll explore why succession planning matters, the costs of avoidance, and practical steps to begin this critical conversation.
Why Succession Planning Gets Pushed to the Back Burner
Before diving into the how-to, let’s acknowledge why succession planning often gets delayed. Understanding these psychological barriers can help you overcome them.
For many business owners, their business represents more than just their livelihood – it’s their identity. The thought of stepping away creates profound questions about purpose and legacy that can be uncomfortable to face. Others worry about family dynamics, especially if multiple children or relatives are involved in the business with different levels of interest or capability.
There’s also the practical challenge: succession planning requires time you may not feel you have while running daily operations. When you’re putting out today’s fires, planning for a transition that might be years away naturally takes lower priority. These barriers are real, but they shouldn’t stop you from protecting your business legacy. Let’s look at what’s at stake when you put off succession planning
The High Cost of Avoiding Succession Planning
Without a clear succession plan, the business you’ve worked so hard to build faces significant risks. Most family businesses don’t survive beyond the second generation, and poor succession planning is a major reason.
Several negative outcomes often follow when a business owner exits without a clear plan. The business may experience leadership gaps that lead to operational inefficiencies. Valuable employees might leave due to uncertainty about the company’s future. Family conflicts can erupt over ownership and control, sometimes leading to costly litigation that drains company resources.
There are serious financial implications too. Without proper planning, your business might face unnecessary tax burdens during the transition. Most business owners have no written transition plan, leaving their companies vulnerable. Your family might be forced to sell the business quickly, often at a fraction of its true value, just to cover estate taxes or other expenses.
Perhaps most importantly, clients and customers may lose confidence in a business without clear leadership succession, taking their business elsewhere. Thus, the relationships you’ve carefully cultivated could unravel quickly during a disorganized transition.
Starting the Succession Conversation: Practical First Steps
Beginning the succession planning process doesn’t mean you need to retire next year. Instead, think of it as creating options for yourself and security for your business. As a LIFTed AdvisorsⓇ attorney, here’s what I recommend:
First, clarify your personal goals and timeline. Ask yourself when you might want to step back from day-to-day operations. Would you prefer to maintain ownership while giving up management responsibilities? Or are you looking for a complete exit? The best plan aligns with your personal and financial objectives.
Next, assess your business objectively. Document key processes, client relationships, and operational details that might exist only in your head. Nearly half of family business owners have no succession plan in place. Identify the strengths and weaknesses of your current leadership team.
Then, identify potential successors, whether family members, key employees, or outside buyers. If family members are potential successors, have honest conversations about their interest and capability. If selling to employees or outside parties seems more appropriate, begin exploring how to structure such transactions.
With your team in place, develop a written succession plan that includes timelines, training requirements for successors, financing arrangements, and tax considerations. Then, work with a trusted advisor to ensure the document is reviewed and updated regularly as circumstances change.
Finally, communicate your plan appropriately. While you don’t need to share every detail with everyone, key stakeholders should understand the general succession framework. This transparency builds confidence in the business’s future.
Overcoming Family Dynamics in Succession Planning
For family businesses, succession planning involves navigating complex emotional terrain. Here are strategies to help manage these dynamics:
Create clear criteria for leadership roles based on qualifications rather than family position. This approach helps ensure the business remains competitive while reducing perceptions of favoritism. Successful family business transitions often involve establishing objective criteria for leadership roles.
Establish governance structures that separate family and business decision-making. A family council can address family concerns, while a board with independent members can focus on business strategy. Businesses with formal governance structures are more likely to survive succession transitions.
Plan for equitable, not necessarily equal, treatment of family members. If some children are active in the business while others aren’t, consider alternative assets for non-participating heirs rather than forcing shared business ownership that might create conflicts.
The Advisor You Need When Decisions Matter
As your trusted LIFTed Advisor, I understand the complex emotional and practical challenges of succession planning. That’s why I offer a comprehensive LIFT Business Breakthrough™ Session where we’ll analyze your current business foundations and develop a personalized strategy that protects your legacy. Then, together, we’ll create a roadmap that addresses the legal, insurance, financial, and tax aspects of transition planning while honoring your personal goals and family dynamics.