Here’s How You Can Avoid Succession Drama at Your Company

Poor succession planning was at the heart of the HBO show Succession, but this financial advisory business owner is here to help you prevent that from happening at your business.

An older woman talks with a younger man in a conference room.
(Image credit: Getty Images)

If you’re a fan of HBO’s Succession like me, you were probably glued to your screens for the final season of the TV masterpiece. While the show was riveting, the truth is that Succession glorified poor business succession planning. If you’re a business owner and tuned in to the show, you were reminded how indecision and loosely constructed succession plans can tear a family apart, affecting your legacy, financial picture and familial bonds.

I know firsthand the major investment of time that goes into running a business. As someone who grew up on his father’s cranberry farm, bagging cranberries and starting a lawn care business at 11 years old, I know that a successful business is run by someone who dedicates their life not only to their craft but to their employees, co-workers, customers and clients. Caring for these people personally and financially, whether friends, family or acquaintances, adds another layer to the succession planning puzzle.

As a financial advisory business owner, I have a uniquely personal understanding of how important and complex succession planning can be. That’s why in this article, I want to share with you crucial advice and factors to be aware of for how to properly step back from your business and into retirement.

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You look after your staff, but have you looked after your own future?

As a business owner, you've likely invested a significant amount of time and energy into looking after your team and clients. You've honed your leadership skills and developed a team that can deliver results. However, as you approach retirement, it's crucial to shift focus from the day-to-day running of your business to long-term planning for your future.

Succession planning is essential to this process, ensuring that your business continues to thrive even in your absence, providing you with a sense of security and peace of mind for your retirement years.

Having a long-term retirement plan in place is essential. It should detail how you'll fund your retirement, whether from savings, investments or the sale of your business. A well-thought-out business succession plan can also offer a structured roadmap for transitioning ownership, detailing logistics and ensuring that your business remains in capable hands.

This plan should be legally sound and comprehensive, providing a clear path for the future of your business whether it’s to sell it or to leave it to a partner, employee or family member. This can help you avoid having to exit retirement, improperly valuing the proceeds of a sale for your business — leaving you with less than you thought for retirement — or leaving behind a dysfunctional business for your successors.

Consider your business partner’s situation

Running a business with a partner can add a layer of complexity to the succession planning process. You're not just considering your retirement and future, but also that of your business partner. This dual-ownership scenario requires careful planning and open conversations. Both partners should be transparent about their retirement plans, including their anticipated retirement age, expectations for financial compensation and desires for the future of the business.

It's crucial to ensure that both partners' interests are aligned to prevent conflict and ensure a smooth transition when the time comes for one or both to retire.

Often, one partner may decide to retire before the other, raising several questions. For instance, who will take over the retiring partner's responsibilities? Will the remaining partner buy out the retiring partner's share, or will a successor step in?

If there's to be a successor, it's essential to identify them in advance. They could be an existing employee, a family member or an outside hire. Whoever it is, they should be adequately trained and prepared to take on the new role. This process requires time and careful planning, so it's crucial to start early.

A brief note on contingency planning

Contingency planning is another vital aspect of this process. It's important to consider a variety of factors, including potential health issues, unexpected early retirement or even the death of a partner. What happens if a partner can no longer participate in running the business? How will their share of the business be handled? Having a solid contingency plan in place can help ensure the business runs smoothly in any unforeseen circumstances.

It's also important to review and update this plan regularly, considering changes in the business environment, health status or personal circumstances of each partner. This way, you can feel confident that your business is prepared for the future, no matter what it holds.

Do you sell your business, pass it on or close up shop?

There are three key options you’re likely to consider when it comes to entering retirement and exiting your business. Here are some key focusing points on each of those options.

1. Selling your business

Choosing to sell your business is a significant decision that requires careful planning and preparation. The first step is to undergo a professional business valuation, which will assess your business's worth based on factors such as assets held, financial performance, market conditions and industry trends. This helps to ensure you get a fair price for your business, or you don’t overestimate how much your business is worth.

Share your intentions to sell early in the process, explain the reasons behind your decision and discuss the potential impacts on the company's operations and structure. This will help prepare employees and partners for the change in leadership and maintain trust in the business' future.

2. Passing on your business

When it comes to passing on your business, the process differs slightly depending on whether you're passing it to a business partner or a family member. In the case of a business partner, it might involve buy-sell agreements, while family succession can involve estate planning.

Regardless, it's important to have open and honest discussions about expectations, roles and responsibilities to avoid conflicts. It's also crucial to have legal documents in place that outline the terms of the transition, and professional advice can go a long way in ensuring this happens smoothly.

3. Closing your business

If you decide to close your business, it's important to have a clear plan in place to manage the impact on your employees and customers. Communicate your intentions to your staff as early as possible, providing them with ample time to seek new opportunities. You may also need to negotiate the termination of leases, contracts and other business obligations.

As for your clientele, let them know the timeline for your business' closure and the final date of service. This will give them time to find alternative providers if necessary.

For your business assets, consider liquidation or selling them off. If you own the premises your business operates from, prepare it for sale or lease to a new occupier. This might involve some renovations or changes to make it attractive to potential buyers or tenants.

What happens without a succession plan?

Without a well-thought-out succession plan, businesses may face a host of complications that could turn their succession process into a melodrama. Unresolved disputes between partners, undervalued assets during a sale or a poorly managed closure can all cause unnecessary stress and financial loss.

One scenario could involve partners with different visions for the future, leading to conflicts that might disrupt business operations, dampen the morale of employees and blow up family dynamics. Another scenario might occur when selling a business without an accurate valuation, potentially resulting in significant financial loss.

In the case of passing on the business to a family member, an unplanned transition could lead to power struggles and potential mismanagement. Ultimately, closing a business without a clear plan can leave stakeholders in the dark and obligations unmet.

These scenarios sound familiar to fans of Succession but keep in mind that such occurrences are very real and can keep business owners up at night and working years past the time they should have retired. With proper, professional planning, open communication and transparency, you can ensure a smooth business succession process, enter retirement on time and leave the melodrama to the TV screen.

Investment Advisory Services are offered through SHP Wealth Management LLC, an SEC registered investment adviser. Insurance sales are offered through SHP Financial, LLC. These are separate entities, Matthew Chapman Peck, CFP®, CIMA®, Derek Louis Gregoire, and Keith Winslow Ellis Jr. are independent licensed insurance agents, and Owners/Partners of an insurance agency, SHP Financial, LLC. In addition, other supervised persons of SHP Wealth Management, LLC are independent licensed insurance agents of SHP Financial, LLC. No statements made shall constitute tax, legal or accounting advice. You should consult your own legal or tax professional before investing. Both SHP Wealth Management, LLC and SHP Financial, LLC will offer clients advice and/or products from each entity. No client is under any obligation to purchase any insurance product. SHP Financial utilizes third-party marketing and public relation firms to assist in securing media appearances, for securing interviews, to provide suggested content for radio, for article placements, and other supporting services.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Keith Ellis, Investment Adviser
Co-Founder, SHP Financial

Keith Ellis is a founding member of SHP Financial and an integral part of the growth of the company since 2003. For over two decades, he has been dedicated to helping his clients protect not only their current investments but also plan for and protect their retirement. This passion and the motivation behind it are solely attributed to his upbringing. Hard work and the value behind not only the financial investment but also the time investment were instilled in him from an early age. He proudly comes from a lineage of entrepreneurs, cranberry farmers and teachers. His learning came from a hands-on approach whether it was bagging cranberries, working at his father’s side or starting his own lawn care business at 9 years old.