Business Succession Planning

Business succession planning is important for business owners who want to maximize the value of their exit and ensure their company continues to thrive after they are no longer leading it. The goal of business succession planning is to minimize disruption, preserve the value of the business, and ensure its long-term success when the current leaders or owners leave, retire, or are otherwise unable to continue in their roles.

The process typically involves:

• Identifying key positions and roles within the business that are critical to its success.
• Assessing potential internal and external candidates who can fill those roles.
• Providing training and development to prepare those candidates for future leadership positions.
• Establishing a timeline for the transition of leadership.
• Creating legal and financial arrangements to ensure the transfer of ownership or control, which may include wills, trusts, buy-sell agreements, or other financial instruments.

Every business owner will leave their business someday. If you want to exit your business on your own terms, it’s never too early to start planning for transition and positioning your business for sale. Organize your financials, find ways to create greater value, and use internal and external advisors to help execute your personal and business goals.

Read about how we helped a recent business owner prepare for and execute the sale of his business and transition to retirement here.

There is no single formula for valuing a business. There are several variables that can impact what your business is worth at any given point in time.

What is the state of the economy? What is the state of your industry and its outlook? What multiple has historically been used to value a business like yours? Who are the interested buyers? What makes your business successful?

A credentialed and experienced business appraiser can help you identify a price range that is reasonable depending on the variables at play when you decide to sell.

At Heritage Financial, many of our clients are business owners. And we’ve helped many owners better understand the value of their business so they can prepare for an eventual retirement, whether it’s 5 years or 20 years into the future. Over the years, we’ve built a network of professional advisors, including business appraisers, that are instrumental to wealth management and financial planning strategies for business owners.

To achieve the best possible price, terms, and outcome when it comes time to sell, we recommend having strong financial controls, budgeting, and reporting, a multi-year growth plan, and an internal and external advisory team. Having a good handle on all aspects of your business gives potential buyers greater confidence in knowing exactly what they are buying. An informed buyer may lead to a higher offer and better terms.

There are many types of people and companies that may buy your business – family members, other company partners, a private equity firm, or a competitor.

Besides considering the type of buyer, you should also consider their location. Are they local in your community, based in the U.S., or a global buyer? If the potential buyer can realize synergies from acquiring your business, it’s going to be worth more.

If there isn’t a natural fit or known short-list of likely acquirers, Heritage Financial can introduce you to a business broker that can help with a targeted search in a similar way as an executive search agency helps identify talent.

A buy-sell agreement is a legally binding contract that outlines how a partner's share of a business may be reassigned if that partner dies or otherwise leaves the business. It is often used by businesses with multiple owners, such as partnerships or closely held corporations, to ensure a smooth transition of ownership and to protect the interests of all parties involved. There are different types of agreements with many components. If you're considering a buy-sell agreement or not sure if you need one, we recommend consulting with tax, legal and financial professionals who can all collaborate to help ensure that the agreement is comprehensive and well-structured.

For many business owners, the idea of passing the company down to the next generation is appealing, but it requires careful consideration involving more than just finances. Start by assessing whether family members are genuinely interested and capable of running the business. Open communication is crucial to ensure everyone’s expectations align.

Next, consider creating a succession plan that outlines how and when the transfer will happen. This plan should include training for the next generation, legal and tax implications, and how to handle potential conflicts. You may also want to explore options like establishing a family council to maintain a cohesive vision for the business. Keeping a business in the family can be rewarding, but it requires thoughtful preparation to ensure the transition is smooth and the company continues to thrive under new leadership.

An effective strategy to preserve wealth should take a comprehensive approach to include total household assets, not just the business itself. Transfers to the next generation during your lifetime can remove future appreciation from your taxable estate but likely need experienced estate and financial advisors to avoid unintended consequences. Decisions often need to strike a balance across income tax, estate tax, liquidity, and control. A detailed financial plan can be a roadmap to understand how gift and estate exemptions are likely to apply to your specific situation now and in the future.