The Business Owner’s Guide to a Seamless Succession Plan
Your business represents decades of hard work, strategic decision-making, and financial prudence. Now, it’s grown to become what is likely your largest single asset—as well as a legacy you can be proud of. As such, it deserves the care and attention proactive planning can bring because, whether you’re ready or not, the time will come when your business must operate independently from you.
How can you leverage this asset, a multi-faceted component of your life, into something that will support you through your future endeavors? Whether you’re preparing for retirement, shifting to a new venture, or ready to introduce the next generation of leaders, a well-structured business succession plan is critical.
Another challenge for owners is that their personal wealth is closely connected to their business’s financial health. Separating them can take ample time, effort, and expert guidance before their eventual exit.
While every business owner’s succession plan will be slightly different, let’s explore a few key areas our team can help you address when considering your business and future financial well-being.
Steps to Develop and Implement a Successful Business Transition
A successful succession plan starts with a clear vision of the future. Your timeline will shape key decisions, and understanding your priorities is essential. Defining personal and financial goals and any concerns about the transition ensures the plan aligns with what matters most to you.
For example, consider how much influence you’d like to have over the future direction of your business. Would you prefer to retain some final say as a consultant or board member? Do you want the business to stay in the family? If so, do you have a successor in mind? Or would you prefer to transition out of it completely?
Are there specific milestones you need to reach before stepping down? Maybe you have a five-year plan you’d like to see through or the launch of a new service or product. Or, you’d like to achieve a certain profit goal.
By understanding your priorities, we can craft a transition strategy that aligns with both your financial and personal objectives.
Selecting a Transition Strategy
To align with your goals, the Wells Fargo Business Owner Advisory Services team will review your options carefully.
A smooth transition benefits everyone involved—including you, your customers or clients, your future successor, and your family.
Potential transition strategies to consider include:
Transferring ownership to a family member
Selling to an employee or outside buyer
Using an Employee Stock Ownership Plan (ESOP) to transfer ownership
Your transition strategy will depend on who you want your successor to be and their willingness to step up to the plate. This particular decision will also be impacted by your cash flow needs and desire to stay involved in the business. Selling to an individual outside the family, for example, may yield a lump sum cash deal, while you may work out other arrangements (like a consultant’s salary, dividends, or installment payments) if you choose to transfer ownership to the next generation instead.
Managing Common Transition Concerns
Exiting the business is not easy for most owners. In fact, it can sometimes become a long and winding road. The good news is that you have a professional on your side to guide you and address challenges as they arise (or prevent them from happening altogether).
Alongside the experts a Wells Fargo, our team has helped other business owners facilitate a smooth transition. This often involves anticipating potential hurdles before they occur.
Some common concerns or issues that arise during the business succession planning process include:
Employee retention: Leadership changes can create uncertainty and make employees feel more compelled to leave. A strong succession plan helps incentivize and encourage key company leaders to stay.
Navigating difficult family dynamics: When transitioning your family business to the next leader, communication, honesty, and transparency are paramount. The deal structure should be fair and mutually beneficial to all parties involved.
Identifying and training a successor: Providing ample training, resources, and lead time to your successor can help ensure greater success during the transition.
Emotional considerations: Don’t forget that during your transition out of the business, you’re likely going to experience the emotions of letting go and moving on. Stepping away from a business is a deeply personal and impactful decision. This is why having an exit plan in place can be so powerful, as it helps provide peace of mind during a difficult time.
As trusted guides and proactive planners, we help business owners avoid disruptions and challenges (like those shared above) while maintaining stability throughout the transition process.
Talking Through Taxes
Selling or transferring a business can result in a significant tax burden, particularly without proactive planning. Collaborating with a tax professional and legal team can help identify strategies to mitigate some tax liability while preserving more wealth in the long run.
While your tax situation will be unique, some of our considerations might include:
Evaluating structured sales and installment payments to minimize capital gains tax (and potentially avoid triggering alternative minimum tax).
Leveraging trust and estate planning strategies to transfer business ownership in a tax-efficient manner.
If applicable, utilize the qualified small business stock gain exclusion or Section 1202.
Retirement and Estate Planning
A business succession plan is just one piece of a larger financial puzzle. Aligning a transition strategy with retirement and estate planning goals ensures a more complete approach to long-term financial security. A clear vision for the future helps shape a well-structured succession plan.
Estate and legacy goals also play a crucial role in this process. Planning for what will be left behind for loved ones is important. How does transitioning out of the business support this goal? Working alongside a legal team, estate plans can be integrated into the broader business transition strategy, keeping retirement and legacy objectives a top priority.
It’s Never Too Early to Start Planning for the Future
There may come a time when it’s too late to establish a robust business succession plan, but there will never be a time when it’s too early. Even if you’re five, 10, or more years away from retiring, it’s important to have a plan in place. Tomorrow is never promised, and you owe it to yourself, your employees, and your family to prepare your business for a future without you in it.
Alongside Wells Fargo’s Business Advisory Services professionals, our team empowers you to continue focusing on your business as we manage the rest.
To learn more about our business succession planning services for Florida’s business owners, request an introductory conversation with our team today. Let’s create a strategy that positions you for success.
Rob Edwards is a Managing Director and Senior PIM® Portfolio Manager at Edwards Asset Management. Rob is a nationally recognized advisor who helps millionaire families navigate the complexities of their wealth. Edwards Asset Management has offices in Naples, Florida and Fort Lauderdale, Florida.
