3 Essential Steps to Begin Your Business Succession Journey

3 Essential Steps to Begin Your Business Succession Journey

Every day, approximately 10,000 baby boomers step into retirement. For those who own businesses, retiring involves more than just ending a career — it’s about deciding the future of their life's work. Despite the significant investment of time and resources into their businesses, many owners do not adequately prepare for succession. In fact, according to statistics presented by the Exit Planning Institute, 70% of business owners recognize the need for succession and exit strategy planning, but only 15% of baby boomer owners globally are prepared for this transition. Ensuring that your business has a solid succession plan is critical for preserving its legacy and value during the transition period.

Business succession planning encompasses several key aspects of your business, such as tax considerations, operational processes and, if applicable, family roles and responsibilities. Protecting your business and facilitating a smooth handover to the next generation or new owners is paramount to ensure it continues to thrive.

Here are three initial steps to get started on your business succession journey.

1) Bring Your Succession Planning Team to the Table

Assemble a dedicated team of advisors, including a multidisciplinary group of professionals, each bringing their own area of expertise and specialization to the table. Key members of this team typically include attorneys, financial advisors, tax professionals, long-term estate planners and bankers, particularly if a business sale is being considered. Additionally, a risk advisor plays a vital role in navigating potential challenges and ensuring the business owner is prepared for unforeseen circumstances. Collaboration among these professionals is essential for leveraging collective expertise that supports the business owner's goals and facilitates a seamless transition.

Opt for a professional services provider that provides a comprehensive suite of services to significantly enhance the cohesion and efficiency of your succession planning process.  Such services may include business valuation, due diligence, tax preparation and strategy, executive compensation planning, insurance and estate planning. The advantage of working with such an organization is the streamlined integration of these services, which ensures that all aspects of the succession plan are aligned and that the planning is executed with a holistic approach. This not only simplifies the process for the business owner but also maximizes the benefits and effectiveness of the succession plan.

2) Identify Your Successor

The next phase in business succession planning involves exploring transition options, which may include selling to a private equity firm or strategic buyer, transitioning ownership to senior management or passing the business on to family members. As an owner who has invested a lifetime of work and pride into your business, the decision to sell the business or hand over the reins is significant, and your choice of successor will depend on your comfort level and desired outcome. While flexibility for potential buyers is important, having a clear understanding of the preferred transition path can significantly influence the planning process. Communicating your preferences to your succession planning team streamlines the transition and expands opportunities by aligning the planning process with your vision for the business's next chapter.

3) Start Your Business Succession Plan Now

Business succession experts universally advise starting the process at least five years prior to the anticipated transition. This advanced planning is not arbitrary — it allows business owners to leverage various tax strategies effectively. One notable example is the potential benefits surrounding qualified small business stock. Meeting specific criteria can lead to the advantageous outcome of selling your stock with zero taxable gain, provided that the stock has been held for at least five years. For businesses not initially qualifying, early engagement with tax professionals can facilitate necessary restructuring to meet these qualifications in time.

Initiating early succession planning grants business owners a comprehensive understanding of their business from an external perspective. It sets the stage for setting realistic expectations, recognizing potential hurdles and potentially modifying the business model to attract a broader spectrum of buyers. By planning five years in advance, succession professionals can assist in recruiting or identifying individuals capable of assuming key roles, preserving the business's value even in the owner's absence. This foresight also allows for the adjustment in leadership style to match the evolving needs of the business.

Unfortunately, many business owners delay the engagement of a professional succession planning team until the verge of selling, significantly limiting the scope of impactful changes. This procrastination not only hampers the potential to enhance the business's valuation but also restricts the strategic positioning and attractiveness to potential buyers. Proactively involving business succession planning professionals can ensure all critical aspects are addressed, aligning the business more closely with market demands and buyer expectations. Ultimately, this approach secures a smoother transition while significantly increasing the financial returns from the sale or handover of the business.

Continue the Conversation

When the time comes to move forward, it's important for your company to have a plan in place for a smooth transition. At CBIZ, our team of experts is on hand to provide the guidance and support your company needs during its transition. Serving as a comprehensive resource, we host a diverse array of professionals equipped to address every facet of your business succession plan. To learn more, connect with us today.


Copyright © 2024, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

3 Essential Steps to Begin Your Business Succession Journeyhttps://www.cbiz.com/Portals/0/Images/3 Essential Steps to Begin Your Business Succession Journey_Hero.png?ver=sgjx6BZszTLE0KA1Ezhx3w%3d%3dhttps://www.cbiz.com/Portals/0/Images/3 Essential Steps to Begin Your Business Succession Journey_Thumbnail.png?ver=yQYYY5FgH6aIQqQesQdt6g%3d%3dHere are three initial steps to get started on your business succession journey.2024-03-04T18:00:00-05:00

Here are three initial steps to get started on your businesssuccession journey.

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