The Business Succession Planning Checklist

When we first meet business owners in our financial planning practice, we typically learn that their businesses are their largest (or a significant) asset, and that their personal and business financial lives are intertwined. They’ve devoted their lives and savings to growing their companies, know that they won’t run them forever and want to earn a fair return on their lives’ work. They just aren’t sure where to begin. Sound familiar?

Succession planning—especially family business succession planning—is complex but it need not be overwhelming. There are many decisions to be made as you prepare to put your business in someone else’s hands, but there are three actions you can take immediately to establish a framework for your unique succession plan.

Action 1: Figure out what you have.

Assigning values to personal assets is straightforward. Valuing a business, however, is far more complicated. First, there are several types of valuations, and each is suited to your departure timeline and the purpose of the valuation. For example, a valuation for estate planning purposes is different from one performed as an estimate of sale price or in anticipation of a transfer to an internal party (e.g., adult child or key employee), and a preliminary estimate of value is not the same as a comprehensive business valuation performed by a certified valuation analyst. We can help you determine which type of valuation is appropriate for your situation.

Action 2: Figure out what you want.

Can you describe the life you want to live after you turn over ownership? Have you quantified the income it will take to live that life and the return you want or need for your ownership interest?

What do you want for your business? Do you want it to stay in the community or in your family? Do you want to reward longtime employees when you experience a liquidity event?

What type of successor would you consider: an employee (or employee group), family member, business partner, competitor, or outside third party?

These answers are important, and they are uniquely yours, yet regardless of the type of successor you envision or how you plan to spend your proceeds, your business must be transferable. In other words, your business must be able to run successfully without you if it is to have value to a successor.

Have you set up your business to run without you? We can help.

Action 3:  Protect your family and your business.

You’ve worked hard to build the value of your business, but have you built a moat around that value? Will your family be secure if something happens to you or a key person in your company before a successor takes the reins?

A business continuity plan not only protects your business should you (or a key employee) die or become incapacitated, structured correctly, it provides your family the same financial security it would enjoy after a successful business transition.

Similarly, proper estate planning protects your beneficiaries in event of your death or disability, shields them from litigation and benefits the people and organizations you choose.

The key for business owners is to coordinate their business continuity and estate plans because unless the two plans complement each other, your family may not benefit from your life’s work. We can show you how your plans can work together, how insurance proceeds can fund them, and perform an insurance analysis designed to prevent you from overfunding or underfunding them.

Figure out what you have, figure out what you want, and protect the business and family you’ve created. Make these three actions the first on your business exit strategy checklist and you establish a foundation for your business succession plan.