7 Ways to Plan for Business Succession

Daily business management is your top concern when you run a company. At some point, though, you’ll be ready to transition away from the company you worked so hard to build.

Maybe you plan to retire and leave the business to your children, or perhaps sell to a larger company interested in expanding. Regardless of why and how you exit, a carefully executed business succession plan is essential to reach your goals.

If you don’t have a business succession plan in place, you’re not alone. According to studies from the Financial Planning Association and CNBC, Opens in a new tab1, most business owners plan to make a handoff of some kind, but only about one third of businesses have an exit strategy in place.

Read on to learn how to plan for this important undertaking in your company.

  • Start early.

    Estimates for the length of time required to put a succession plan in place range from one to five years. Sometimes it takes even longer. Firming up your goals, assembling a team of advisors, making any required changes to your company, and planning your post-sale life all take time.

  • Set goals.

    Do you hope to use proceeds from the sale of your business for your retirement? Do you want to continue to work for the company once you hand it off? Another keystone of goal setting is understanding your complete financial needs post-succession. For example, if your company is your retirement plan, then you will need to know the minimum sale price to ensure you have enough to support you during your retirement years.

  • Explore options.

    Part of your planning should also entail broadening your knowledge of less well-known exit paths. With a full understanding of the range of succession options, you are most likely to find the best option for you. For example, selling to employees via an employee stock ownership plan (ESOP) may offer more tax advantages and could ultimately result in greater proceeds to you than a sale to a third party.

  • Focus on taxes.

    Tax planning is an important part of preparing for business succession. In fact, each decision you make along the way will likely have tax implications. With a Wealth Planner involved from the early phases of this process, you can make decisions with the greatest tax-efficiency in mind.

  • Consider financing.

    Personnel changes, upgrades to infrastructure and reduction of risk are just some of the undertakings needed to prepare a business for a transition. These changes can help make your business viable without you and more attractive to others. They may also require funding. Consider your funding requirements early in the process so that you have ample time to find the best option.

  • Value your company.

    The price your company will fetch can actually differ depending on many factors, including your transition plan. For example, if you sell to a competitor or financial investor, you may get a higher price than if you sell to an existing employee or family member. The assets you have and the infrastructure you have in place are other factors that can impact your valuation. Consult with your Wealth Advisor and Wealth Planner to determine the path to a realistic price.

  • Assemble a team.

    Planning for your exit can be overwhelming, but it doesn’t have to be. Early in the process, it’s recommended that you work with a Wealth Planner or Wealth Advisor. These professionals can help prioritize your goals, educate you on your options and act as a project manager with all your other advisors, such as attorneys or accountants, to shepherd you and your business through an often challenging, but exciting, transition process.

Are you interested in learning how First Citizens can help you plan for your business succession? Contact us today at 1.866.FCB 4BIZ Monday — Saturday 7:00 a.m. to 11:00 p.m. Eastern time.