Succession planning for you and your business

By Jeffrey F. Cowley, JD, CFP®, AEP®, CEPA | Senior Wealth Strategist, Citizens Private Wealth

As a business owner, your company is more than just an asset on a balance sheet. It represents years, even decades, of hard work with a mission-driven focus. It may even be part of your identity and potentially the crown jewel of your family's wealth. Succession planning, while an essential part of a personal and business financial plan, is sometimes deferred or even overlooked by founders who are focused on building business value.

It's not an easy endeavor, particularly if you take great pride in what you've built and what you do. Whether triggered by death, disability or retirement, succession planning is a vital process that ensures continuity, minimizes disruption and preserves wealth across generations.

Big picture, succession planning helps protect both your personal wealth and your business legacy. A well-crafted strategy allows you to transfer ownership efficiently while preserving the ethos that made your company what it is.

Waiting until the "right time" to begin planning can limit your options, force rushed decisions and increase the risk of conflict or business instability. Beginning the process during calm times can make the transition smoother, with fewer disruptions to operations, staff and customers. If you own a complex portfolio, you must develop a comprehensive strategy to secure your wealth and preserve your business's legacy.

What to consider when succession planning

Each business is unique. Taking a strategic, big-picture view before diving into logistics can clarify your next steps. Here are some foundational factors to weigh.

Leadership continuity

Leadership continuity is perhaps the most obvious consideration. Who will run the business once you step aside? For some families, the next generation may take over responsibilities. Other companies may transition ownership duties to a partner or hire an external executive to fill the role. Regardless of who assumes the helm, a sound succession plan requires foresight, preparation and transparency.

Operational knowledge transfer

All the accumulated knowledge since a company's launch must be passed on to the next executive team. That includes insights into day-to-day management, relationships with clients and vendors and cultural nuances that make the business your own. Without this operational handoff, even the best new leader may struggle to succeed. An effective plan formalizes this operational knowledge transfer.

Managing expectations

Managing expectations is key. All stakeholders must understand why the ownership change is occurring and what the ultimate goal is. Minimizing stress and addressing questions from clients, customers and employees can minimize disruption and protect morale.

Family-run business dynamics

Family-run businesses face distinctive challenges but also valuable planning opportunities. Passing the baton to a child or other family member may be the goal, and it's often a journey marked by emotional hurdles. For instance, questions naturally arise, including how ownership should be divided if you have multiple children.

Compensation structure is another topic to address in advance. Conversely, external management changes may have fewer personal considerations, but the strategy is just as detailed.

Holistic financial picture

Beyond the business itself, succession planning addresses the complexity of wealth structures. High-net-worth entrepreneurs often hold diverse portfolios comprising multiple private companies, investments and global assets. Therefore, incorporating the primary business into a long-term financial plan is the ideal comprehensive approach.

Managing emotions

The dollars and cents are undoubtedly important, but the emotional stakes are equally high. Balancing family dynamics, business interests and personal legacies requires expert planning and often the help of experienced professionals. It's challenging to navigate the intersection of family values with wealth preservation and distribution — even for those well-prepared for the ownership transfer. For example, one founder may want to treat all children equally, while another may prioritize fairness and equity. Make choices about gifting shares, creating earnout agreements or structuring sales with both financial and emotional outcomes in mind.

Common exit options

Business transitions take many forms, and they don't always require walking away entirely. Succession doesn't have to mean a clean break. It can be gradual, strategic and designed around your personal and financial goals. By understanding the full spectrum of transition options, you can build a plan that honors your legacy while setting your business and family up for future success. Each of the following exit strategies reflect varying degrees of ownership change.

• Family succession: In a family succession, ownership and leadership are transferred to a family member, often a child or other relative. This option allows for continuity of legacy and values but may involve complex planning.
• Management buyout: A management buyout involves selling the business to your existing management team. This can be a compelling option if you have a strong internal leadership bench who know the business well and are aligned with its long-term mission.
• Sale to a third party: Selling to an outside buyer, such as a competitor, strategic investor or private equity firm, can offer maximum liquidity. However, it may come with cultural shifts, integration challenges or changes to the company's identity.
• Employee stock ownership plan: An employee stock ownership plan enables employees to become partial or full owners through a qualified retirement plan. This approach rewards loyalty, preserves the company's legacy and can provide significant tax benefits.
• Merger or acquisition: Mergers and acquisitions (M&A) combine two companies to create value. M&A strategies can optimize growth potential but also require careful alignment of culture and vision.
• Initial public offering: An initial public offering (IPO) allows a company to sell shares to the public. While less common for privately held businesses, it can offer substantial liquidity and visibility. However, it brings significant regulatory, operational and shareholder demands.
• Liquidation: Liquidation — a sale of a business's assets — is usually a last-resort option, often used when there's no viable successor or buyer. While it can provide quick closure, it rarely delivers full value compared to other options.

8 Key components of a successful succession plan

You have a lot to weigh when preparing for an exit. Documenting everything methodically and with a long-term view brings clarity to the process.

Clear governance structures

Begin by establishing clear governance structures. This involves creating and maintaining a framework for decision-making through family councils, advisory boards or independent directors. This governance lattice ensures that decisions are made without bias and are less prone to internal and emotional conflict. A clear governance structure also outlines how family members, advisors and external experts will participate in the transition process.

Defined roles and duties

With multiple individuals potentially in the mix, defining roles and duties before the succession process begins is key to preventing confusion. You must select the next CEO and other future leaders within the company. Consider establishing mentorship programs, promoting less formal on-the-job shadowing throughout the organization and implementing leadership development to support the next generation's success. A robust plan addresses contingencies, including the possibility that a successor steps away, as well as potential conflicts.

A business continuity plan

Succession planning should go hand-in-hand with business continuity planning. What happens if the intended successor is suddenly unavailable? Or if there's an economic downturn during the transition? Consider developing contingency plans that address short-term leadership gaps, operational disruptions, or shifts in the market landscape. This ensures the company stays resilient, even amid change.

Financial planning and valuation

Start with a realistic, up-to-date business valuation. A proper financial framework supports a smooth succession. Whether the transition involves gifting, selling, or a mix of both, the financial structure should minimize tax burdens while ensuring liquidity for stakeholders. You might also need to consider how the plan affects company cash flow, investor relations, or buy-in from other shareholders.

Legal and tax considerations

Numerous tax and legal implications are associated with executing a succession plan. Domestic and international regulations can affect everything from your personal estate to the responsibilities and obligations of the new executive team. You should partner with a tax expert and attorney, among other professionals, to craft trusts, buy-sell agreements and other documents. Because of the highly technical nature of this work, these advisors should be specialists in their respective fields rather than generalists. The advisor team that got you here might not be the best team to get you there.

Cultural values and alignment

Beyond legal structures and leadership titles, successful succession protects the organization's cultural fabric. Clearly articulating the company's mission, values, and vision helps ensure continuity in how business is conducted. Embedding these into onboarding for future leaders reinforces long-term alignment, especially in family-owned enterprises where values are often deeply rooted.

A communication plan

Action-oriented entrepreneurs might have the perfect strategy outlined and all the necessary legal boxes checked. But even the most technically sound succession plan can be rendered useless if it's not adequately communicated to all stakeholders. You should design a communication plan that keeps all parties aligned and informed about succession decisions. Create a transparent, inclusive environment to prevent misunderstandings and disagreements. To be clear, you must not divulge proprietary information to third parties, but open and ongoing dialogue with the next generation of leadership is imperative.

Timeline and milestones

Too many succession plans fail because they're vague or delayed. Establishing a timeline with clear milestones is essential to avoid open-ended planning that leads to uncertainty or conflict. Define target dates for leadership handoff, training completion, stakeholder communications and legal transitions. A phased approach can reduce disruption and give successors the runway they need to succeed.

Succession planning best practices

Once a framework is in place, effective execution depends on these best practices:

• Regularly update the plan to reflect changes in family dynamics, business needs and tax laws. Remember that a succession plan is a living document; it's not something to set and forget.
• Engage in continuous dialogue with heirs and stakeholders to promote understanding and preparedness. An effective succession plan hinges on periodic conversations and engagement with your family and the business's future owners so that everyone is informed and aligned with your vision.
• Weigh the benefits of implementing a phased approach to leadership succession, which can foster a smooth transition. A gradual handoff may empower successors to gain valuable experience directly from you or other owners or partners. Rather than a clean break, a stepwise succession method reduces disruption and builds confidence among your team, customers and other business partners.

Ultimately, you'll gain a sense of fulfillment — not just peace of mind — once a well-constructed succession plan is put in place.

Role of professional advisors in succession planning

Succession planning covers many crucial areas of your business and your family's financial plan. Emotional considerations and strict legal requirements must not be overlooked. Reaching out for professional assistance is often required and is good practice to avoid missteps that could lead to a failed business ownership transition.

Legal and financial advisors, including experts in tax law, estate planning and business succession, should be part of your team as you prepare for the exit. They ensure that ownership transfers are properly constructed to meet both domestic and international regulations. Beyond mechanics, they help integrate a business sale with your long-term financial plan. A wealth manager has the skill to put sale proceeds to work to grow your net worth, while accountants and attorneys may provide peace of mind that the entire process is executed flawlessly.

Business consultants can play a role in your succession plan also. Financial advisors and legal professionals broadly focus on hard details, but these consultants are specialists who help you navigate softer family dynamics, governance structures and business growth strategies.

For instance, you may seek to maximize your company's value in the three to five years before you exit. A consultant can develop strategies to boost the enterprise valuation multiple that others are willing to pay for your business. Having worked with others like you, they can manage the leadership transition once exit day arrives while preserving the culture you helped to instill.

Get expert guidance as you create your succession plan

Succession planning is not a one-and-done proposition that can be tackled in a few afternoon workshops. It's a complex and ongoing strategy that preserves your wealth and legacy. Founders often look forward to an exit, but it requires a proactive approach and, often, the involvement of trusted advisors. The best succession plans include technical expertise, honest conversations about goals and a careful balance of family values and business priorities.

Citizens Private Wealth is here to help. Talk to your Wealth Manager to initiate or refine your succession plan so that you can secure the long-term prosperity of your business.