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In this installment of our business succession planning series, we will start by identifying some key components and characteristics of successful plans. We will close by discussing a roadmap for the succession-planning process.


As you might expect, it is nearly impossible to answer that question with any degree of exactness. There is no magic concoction that works, without fail, in every situation and for every company or family. Ultimately the process may be simple, but it certainly isn’t easy.

So let’s summarize where we are so far: there is no magic bullet and success planning is hard. It sounds like it’s a lost cause so we should just keep our head down, run our business and hope for the best, right? Obviously that isn’t a recommended strategy as we discussed in prior installments of the Business Succession Planning Series.

While we may not be able to fit every situation into a prepackaged plan, it is possible to identify and build from a common foundation of components that are present, or at least considered, in successful plans. Those components are typically built from the core values we use regularly to navigate our personal and professional relationships including things like the following:

  1. Open and honest communication
  2. Trust and respect
  3. Transparency and accountability

These core values are like the three-legged stool. The plan and the process fall apart if even one of those legs fail. However, when we combine those core values and apply them to business succession planning, they can form a rock-solid foundation for the planning process that often includes:

Shared vision, values & goals

  • Identification, review, and honest assessment of key persons
  • Inclusion of key persons in the planning process

Well-formulated strategic plans

  • Long-term strategic plan for the business
  • Long-term plan for the owner and family
  • Short-term crisis plan

Clear procedures and expectations regarding participation in the business

  • Fair and open compensation model with key persons
  • Commitment to conduct honest performance appraisals
  • Prompt addressing of issues as they present themselves

Guidelines for management succession and continuity, as well as ownership succession

  • Training key persons to be the company’s future leaders
  • Informing and updating employees on the succession plan and transition

This is not an all-inclusive list, but it does touch on a number of key components commonly found in an effective succession plan. You will notice that many of the items mentioned are not things we would expect to see in any estate planning, buy-sell agreements, or other legal documents to effectuate the transition. Like so many other areas of planning, it is the journey (the process), not the destination (the executed documents) where the real value lies. With that in mind, the following section of this installment provides a sample guide/checklist to help chart the course for the planning process.


This roadmap is intended to assist closely held businesses as they explore the many issues surrounding ownership and management succession planning:

1. Determine the need for planning

  • Owner(s) would like to retire, but have not settled on who will take over
  • Designated successor no longer interested, available,or capable of taking over
  • Assess whether the owner has followed through on mentoring/training of the designated successor(s)
  • Review business, market, and broader economic conditions to ensure the initial plan projections and assumptions hold true
  • Review the designated successor financing feasibility and/or the ability of the company to cash flow the transition

2. Valuing the business and the company’s financial statements (profitability and cash flow)

  • Determine how much the business is worth
  • Look to industry rules-of-thumb valuation (multiplier of EBIDTA, book/liquidation, discounted cash flow, blended, etc.)
  • Owner’s expectations for the value of the business
  • Determine how much the owner needs to receive for the business to meet the owner’s financial and retirement goals
  • Evaluate whether company cash flow is sufficient to support both owner and successor during transition

3. Evaluate the owner’s goals and concerns

  • Prepare, review, and/or revise the owner’s comprehensive financial plan to ensure owner will have the resources required for he/she to retire/sell/transition
  • Engage in open communication with co-owners, involved family members, and key employees regarding the owner’s plan to transition
  • Prepare, review, and/or revise the company’s formal business plan (strategic and short term)
  • Prepare, review, and/or revise the buy-sell agreement with co-owners
  • Determine a reasonable timetable for ownership and management succession
  • Explore and resolve owner’s challenges, fears, and issues regarding the transition
  • Identity and image issues: owner is the business/business is the owner
  • Giving up control
  • Finding hobbies or other activities in retirement
  • Pivoting from business owner to passive investor

4. Review family member and/or key person dynamic

  • Conduct an open and honest evaluation of family members and key persons to ensure they are capable of serving in the desired ownership and management positions
  • Engage and include the desired family members and key persons in the planning discussion
  • Communicate the plan to family members, key persons, and employees

5. Integrate business/family succession plan into overall estate plan

  • Involve family members in developing and implementing a plan
  • Structure the transfer and draft the plan
  1. Sale, gift or bequest, part sale / part gift, ESOP
  2. Define the time frame for the transfer and transition
  3. Define the responsibilities of the parties involved
  4. Define the mechanics of the ownership change (e.g., stock or title transfer)
  • Determine how the ownership interest and/or overall wealth will be divided among active and inactive family members
  1. Non-business assets: cash, investments, real estate, life insurance, etc.
  2. Related business assets: business real estate, equipment, etc.

6. Selecting a vehicle to facilitate the transfer/sale/gift

  • Consider using trusts and/or family limited partnerships (“FLP”) to centralize management and to preserve ownership within the family
  • Determine whether valuation discounts for lack of marketability, lack of control, etc. apply to the interests transferred

7. Sale to key employee group or through an Employee Stock Ownership Plan (“ESOP”)

  • Explore whether key employees have the financial resources necessary to purchase the business
  • Determine whether the key employees have sufficient management capabilities
  • Review financing options: leveraged buy-out, traditional finance, cash flow from the business
  • Evaluate whether to sell to employees through an ESOP
  1. Provides employees with a stock-based benefit
  2. Keeps the business in the community and preserves the employees’ jobs
  3. Tax-favored corporate financing

8. Deciding whether to sell or liquidate

  • Identify and evaluate companies/third parties interested in acquiring the business
  • Identify and evaluate companies that could be strategic partners interested in a merger
  • Determine whether the business should be liquidated or sold off in smaller parts

9. Communicating the plan

  • Prepare a written succession plan
  • Ensure that the plan contains specific measureable actions and milestone dates
  • Deliver the plan and provide open communication with all interested persons including family members, co-owners, and employees
  • Commit to revisiting and reassessing the plan on a regular (i.e. quarterly, semi-annually) basis to ensure the plan evolves with the business and the overall environment

10. Compile a team of advisors

  • Attorneys (business, estate, and tax)
  • CPA/tax professional
  • Life insurance professional
  • Investment, wealth management, financial planning professional
  • Commercial and private banker/financial institution
  • Business broker/investment banker/real estate professionals



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