Succession Planning: Succeeding in Business and Life

John HeacockDecember 14, 2018

Estate Planning

If you are like most business owners, your personal life and business life are practically inseparable.  You have been actively involved in building your business for years, and have seen its continued success.  You may have family members in the business, or certain employees who want to take over some day so you can retire. No matter what stage of the game you are in, establishing a solid business succession plan is beneficial for most business owners and absolutely necessary for many.    

Business succession planning is essential for anyone who owns a small business, because typically the business is the largest asset in the owner’s estate.  Without a succession plan in place, it is unlikely that your business will survive to the next generation. The ultimate goal of estate planning is to ensure your loved ones are taken care of after you are no longer able to operate the business. Business succession planning integrates estate planning techniques to position the business for continued success when the owner retires, dies, or becomes disabled.

There are three essential steps to developing a business succession plan. 

  • Step 1: Articulate a Clear Vision
  • Step 2. Build Your Management Team
  • Step 3: Develop Your Estate Plan

Step 1: Articulate a Clear Vision

A good first step is to closely align the measurable goals of your succession plan with your company values. This can have deep implications for the success of your company both now and in the future.  It will help ensure that your organization stays true to its principles, while also preserving its financial health and reputation along the way. 

The long-term goals you establish for your business will determine appropriate financial planning, retirement planning, transition planning, estate planning and tax planning strategies to implement.  We recommend surrounding yourself with a strong team of advisors to assist you in developing and implementing a comprehensive succession plan that will help you achieve your goals. Your team should consist of an estate planning attorney familiar with succession planning, a business lawyer, an accountant, a financial advisor, and an insurance agent. Together, these individuals will review your goals and evaluate the present state of your business in order to forecast realistic and obtainable results and maximize liquidity for your business.

Step 2: Build Your Management Team

In the early days of running your own business, it’s only natural to do most of the leg work yourself.  For many business owners, it is difficult to give up control and transition from the day-to-day operations of the business. When you reach this point, it may be time to think about bringing other high-level managers on board, allowing you to delegate work within the business.  Building a senior team able to manage all critical areas of your business will give your successor time to grow into the role and ensure that he or she is ready to take the business to the next level. 

A succession plan must also address methods to guarantee key employees will remain with the business upon your death, disability or retirement. An employment agreement, for example, establishes integral job responsibilities, compensations and benefits. The agreement may also outline incentive compensation, a profit sharing plan and a non-compete clause. To protect against financial loss due to the unexpected absence of a significant employee, your business may also purchase personal life insurance, disability insurance, or both.

Step 3: Develop Your Estate Plan

An estate plan is the key element of any succession play.  Often, one major concern for business owners with children, who are active in the business, is how to treat them equally throughout the business succession process. The situation is further complicated when business owners lack non-business related assets, which makes it more difficult to leave an equal share of their estate to children not working in the business. Developing the appropriate estate plan is very important when addressing such concerns.  Selling the business to the active children may be one option, which can provide an equal distribution among all.  The sale price may be at fair market value determined by an independent appraisal.  Typically, the purchase price will be paid in installments with interest over a term of years.  An alternative option would be for the business owner to bequeath the business to the active child and leave non-business assets to the other children.

In combination with your estate plan, the successor owner of your business should enter into a buy-sell or shareholder agreement with the other owners. This is a legal arrangement providing for the redistribution of shares of the business following a triggering event (i.e., an owner’s death, disability, retirement, legal proceeding or termination of employment). The buy-sell agreement sets forth the purchase price and payment terms upon occurrence of the pivotal event. Life insurance is one way to provide the cash necessary for the business or surviving owners to purchase a departing owner’s interest.


In summary, business succession planning is very complex process. However, a sound business succession plan is an investment that will pay off for you and your heirs now and in the future.  An estate plan that aligns with the goals of your business plan and is tailored to meet your personal and unique objectives and financial situation is an important component of the overall process. It is essential to surround yourself with a team of advisors to assist you throughout your journey. Planning for the future is difficult. To ease the process, don’t worry about what cannot be controlled. Instead, we recommend planning for a transition you can control.


Forbes Magazine. The Importance of Succession Planning and How You Can Start (2018)
The New York Times. Avoiding the Pitfalls of Succession (2013)
Barron’s. Why Succession Planning is Critical (2018)
Barron’s.  Five steps for an orderly Succession (2017)
The Wall Street Journal.  Succession Planning Is Key to Smooth Transitions (2016)
Inc.  Why Every Small Business Owner Needs to Start Their Succession Planning Now (2018)
The Business Journals.  3 Steps to Succession Planning (2016)

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