Navigating the Future: 7 Questions for Small Business Owners on Succession Planning

As a small business owner, you likely view your enterprise as not just a short-term economic venture but rather a legacy built on hard work, trust, and values. However, you can’t have much of a legacy without planning for a future without you.  Most family-owned businesses lack a formal succession plan. The reasons are not surprising: creating a succession plan requires having difficult discussions around emotionally fraught family dynamics:

• Should your son or daughter be groomed to take over the helm, or should it be a non-family member?
  

• Should you just sell and split the proceeds?
  

• What if the company you founded and devoted your life to building goes in a different direction once you retire?

These are difficult questions that make the topic of succession planning can be daunting. However, establishing a solid succession plan is crucial not only for the longevity of your business but also for the well-being of your family.

Here are seven essential questions to ask yourself to guide your succession planning journey:

1. What Are My Long-Term Goals for the Business?

Begin by considering your vision for the future of your business. Do you wish to keep it within the family, sell it, or perhaps merge with another company? Do you want to continue having a “say so” in how the company is run after you’re no longer involved day-to-day?  Where do you want the business to be in 5, 10 or 20 years from now?  Clarifying your long-term goals will provide direction for your succession plan and help ensure that your wishes are met.

2. Am I Prepared to Let Go?

From our point of view, this is the most important question every business owner must answer.  Succession planning requires a willingness to step back and allow your successor to flourish. If you’re not willing, why not?  Do you have “control issues?”  Do you lack confidence in the next generation’s abilities?  Is your self-worth too closely associated with your role as the boss?  Perhaps you have no plan for life after running your business. 

Hall of Fame coach Chuck Noll once said:  "Gentlemen, welcome to the NFL, you are now being paid to play, football is your profession. But I can tell you it is not your life. You can't let it be. Part of my job is to help you find your life's work.” 

What’s your “life’s work” after business?  Reflect on how this may impact you personally and what support you might need during this transition.

3.  Who in My Family is Interested and Capable?

Evaluate your family members' aspirations and qualifications. Are there potential successors among your children or extended family who are both interested in taking over and equipped with the necessary skills? If they don’t have the skills now, are you ready and able to mentor them prior to handing over the reins?  Are there some members of the next generation who should be managers and some who just own shares? It’s important to involve them in this discussion early to gauge their interest and capacity to lead.

4. What Legal and Financial Considerations Should I Address?

Succession planning isn’t just about identifying who will take over; it also involves legal and financial ramifications. Have you consulted an attorney or financial advisor to discuss estate planning, tax implications, and the transfer of ownership? Consider seeking expert help to navigate potential pitfalls.

5.  Is selling the family business the right thing to do?

This is a very personal choice — and it involves much more than emotions, succession issues, and the hurt feelings of the younger generations. There are estate planning, tax planning, and retirement planning issues to consider. And then there is your own emotional attachment to the company. Are you ready to let go of this amazing thing you built over a lifetime?

6.  Who might want to buy my business?

Exiting from the business by selling to a strategic partner, non-family employees, or an investor like a private equity fund is doable. Depending on your goals, some buyers will take full control, buying you out, while others might take a minority interest or provide ongoing dividends to you and your family.

An exit plan that involves sale or merger requires a high level of organization and may entail investing in improvements to make the business and its assets appealing to a buyer.

Family business owners should start preparing for sale now, even if a potential exit is years down the road. Owners want to sell the business for a price that allows them to reap the reward for all of the hard work, time, money, and sacrifices they have invested into building that company.  But the reality is that buyers often find issues that push down the purchase price.

7. Have I Communicated My Plans with Key Stakeholders?

Communication is key in a family business environment. Have you shared your thoughts about succession plans with family members, key employees and important customers? You should not assume that your ideal plan for your business is also your family’s plan.  Perhaps the person who you’d choose to take over would not want that role.  Their input can provide valuable insights on the direction you take your planning and help mitigate disruptions during the transition.

Succession planning for a family business is a nuanced and often sensitive process. By thoughtfully addressing these important questions, you can create a roadmap that not only ensures the continued success of your enterprise but also upholds your family’s values and legacy. It should also not be rushed. Consider establishing a timeline for transitioning leadership. This could range from a gradual transfer of responsibilities to a defined handover date.

If you have further questions regarding succession planning or wish to discuss your specific situation, feel free to schedule a risk-free meeting with one of our experienced succession planning attorneys. Your family's legacy deserves intentional and strategic management as it moves into the future.