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Business Succession Planning: How to Plan Strategically

12/04/2023 - Business Insights

Business woman sitting at an office desk in casual clothing smiling at the computer screen
Business Insights: Business Succession

Business Succession Planning: How to Plan Strategically

If you’re starting to think about retirement, it’s understandable if you don’t simply want to sell your business to an outside buyer and walk away.

Your business is part of your legacy, and you want to see it continue to flourish and support the loyal employees who’ve helped you build it.

But have you created a roadmap for how you will support the business when you step away?

You will need a business succession plan, which is both a long-term plan for the transition of business ownership and leadership and a go-to directive in case of a crisis (such as, if the business owner can no longer run the company). Business succession planning is a disciplined approach that guides the transition by making important personnel and financial decisions ahead of time.

The Importance of Business Succession Planning

The challenges of the pandemic drove home the importance of succession planning for many business owners, as the realities of a major public health crisis made business continuity a primary concern.

Yet this critical area of business ownership is often neglected. Many small-business owners don’t have a written business succession plan, which creates a big risk of disruption for their businesses and the employees who depend on them.

Even if you don’t plan to give up the reins for many years, business succession planning shouldn’t be delayed. The sooner you begin, the more flexibility you will have to determine the direction of your business when you do make your exit.

Careful succession planning now can help you to:

  • Find the right successor and support a smooth transition to your business’s new leadership
  • Maximize the value of your business (and your proceeds from its sale)
  • Create the right roles for employees or family members, and take steps to retain key employees after you depart
  • Ensure you have prepared all necessary documents (such as buy/sell agreements if you have business partners)

The following succession planning best practices can help you support a smoother leadership transition:

1. Identify Your Personal & Business Goals

First, decide if you plan to turn your business over to a successor – whether a family member, current manager, or future hire – or if you will sell it upon your retirement. If choosing a successor, you will want to stay involved in the business to some degree but let them oversee day-to-day operations.

If keeping your business in the family is a priority, think about which family member has the experience and skills to take over, being aware of how family dynamics may affect this transition if multiple family members are part of the business. Open communication can be key to mitigating potential conflict.

2. Create a Timeline for Transition

If you love what you do, you may want to keep running your business for as long as possible. Or you may feel ready to start your next chapter and step away from your business in the next few years.

In either case, it’s a good idea to think backward by determining how much time it will take to identify and train a successor. Your timing may also be influenced by your own retirement savings goals and how close you are to reaching them.

3. Work With Experienced Advisors

Discuss your long-term goals with your accountant, lawyer, financial advisor, tax professional, and banker. These outside professionals can provide valuable input as you identify a successor, navigate tax laws, and work to preserve your wealth.

Establishing a realistic business valuation is also important. It may help you identify ways to strengthen your business’s finances now – such as by reducing expenses and boosting cash flow – to help improve your business’s selling price later.

Business owners have a number of ways to step out of their company. For example, they can sell all at once, or do so gradually through partial sales over time, which makes the transaction financially practical for the buyer(s). If the owner wants to step out of day-to-day business activities, they can also incentivize key employees to run the business by offering stock to them. Relying on the guidance of legal and financial experts can help you identify the best approach for your situation.

4. Choose & Train Your Successor

Identify someone who is invested in your business’s success and has the skills and leadership qualities required. Your successor should be, or should become, deeply familiar with all aspects of the business. If they need additional skills, outside classes or training may be necessary. As you develop this person to take over your role, be sure to establish goals and monitor their progress.

Meet with key employees and any stakeholders to communicate what you want the business to look like when you retire and what processes will be in place for the transition of leadership and any changes to your operations.

5. Review Your Business Succession Plan Regularly

Circumstances can change, which is why many companies revisit their business succession plan annually and make updates as needed. Similarly, for your small business, don’t think of business succession planning as a one-time event, but an ongoing process. You may need to adjust your succession plan to reflect changes in your business or personal life.

See the Future More Clearly 

Business succession planning can have significant implications for your own retirement, estate, and tax planning goals. As you think about the next chapters for your small business, reach out to WesBanco for expert support.

Get an Appointment


Content is for informational purposes only and is not intended to provide legal or financial advice. The views and opinions expressed do not necessarily represent the views and opinions of WesBanco.

While we hope you find this content useful, it is only intended to serve as a starting point. Your next step is to speak with a qualified, licensed professional who can provide advice tailored to your individual circumstances. Nothing in this article, nor in any associated resources, should be construed as financial or legal advice. Furthermore, while we have made good faith efforts to ensure that the information presented was correct as of the date the content was prepared, we are unable to guarantee that it remains accurate today.

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