Succession Planning at All Stages

by | Blog, General Business

For most business owners, especially entrepreneurs who have founded their business, the word succession is inextricably linked with retirement. There are many myths around succession planning – including the most prominent “I’m not ready to retire.” However, it turns out that no matter what stage of business you are at, it’s never too early to think about succession planning.

Early stage
Exiting a business for an early-stage entrepreneur is somewhat unusual and may be focused at this point on preparing for some type of unplanned exit. For that reason, it’s good to have succession contingency plans in place for leadership, as well as life insurance to provide for loved ones. To take a more sophisticated approach, however, making sure there are legal structures in place to protect an operating business is equally as crucial. Wills and even complex estate planning tools often do not cover an operating business.

Protecting an operating business in the event of an unplanned exit achieves two goals. First, it provides a harmonious realignment and ensures value and equity in the company remain intact by reassuring customers, clients, and employees your business will continue to run as usual. Second, it preserves equity and potential income from your business for loved ones.

• Seek out a professional for life insurance, estate planning and trusts
• Create an early-stage exit plan
• Talk to an attorney to make sure your business operations are protected

• Leave succession an unplanned question
• Rely on life insurance and estate planning to take care of loved ones and protect the operation of your business
• Put planning off because retirement is years in the future

Middle stage
At this stage you may have a robust business – you’re out of the early or startup period and operations are running smoothly. You may be in a growth phase, possibly acquiring other businesses or expanding by investing in technology or infrastructure.

The middle stage may have a long runway for succession planning. It blends the practicality of having plans in place in case of a sudden, unplanned exit and looking ahead at the course and growth of your business over the long haul.

• Revisit plans put in place at the start of your business to make sure they’re still relevant
• Consider your ideal time frames for exiting your business
• Develop talent at your company who could take over when you decide to exit

• Put off planning until months before you’ve decided you want to exit
• Become so focused on day-to-day operations that you lose sight of the big picture
• Assume plans you may have had in place five or 10 years ago still apply

Exit stage
In this stage, you’ve decided you want to exit the business you’ve worked so hard to build. You’ve created a timetable and may have a date in mind for exiting that’s one to five years out. Valuation, equity, and how you can continue to realize income are top of mind.

But first, how are you feeling?
This stage comes with a lot of emotions. Not only are you attached to a business you’ve nurtured from idea to startup to maturity, but you’ve also likely got your identity wrapped up in your role as a business owner and are emotionally connected to its history of growth and success.

Redefining yourself post-exit, whether you are retiring or going on to new ventures, is important. Take some time during succession planning to deal with this normal mix of emotions and think through what the next act looks like for you. Careful planning about your life in tandem with succession planning can mitigate a sense of loss and add excitement to looking forward to what’s next.

Key financial issues
The key financial issues you’ll want to work through with your advisors, accountant, attorney, and family are many.

• How much is enough, after taxes, with plenty left over to fund your desired lifestyle and estate planning objectives? Home in on your lifestyle goals and the associated expenses.
• Who will you sell to or pass the business on to? A key employee group, family, or third party? What are the tax implications of a sale or transfer?
• Will you immediately exit or transition out over time?

Your options
Together, we can tap into strategies that will help refine your plan. Options could include specialized trusts (e.g., revocable living trusts, intentionally defective grantor trusts, grantor retained annuity trusts) and self-canceling installment notes and intra-family loans. Some assets will require more legal coordination to handle properly during the legacy planning process, such as real estate, intellectual property, certain types of stock, business partnerships, and promissory notes. We can help you understand the advantages and considerations of each.

We will also want to think through how to provide an inheritance for a child who is unwilling or unable to be active in the business, as well as your plans should you have to leave the business before you’re ready (e.g., disability, divorce, distress, or disagreement).

Jodi Perez, CFP®, CEPA®
Financial Advisor, Raymond James
20635 Amberfield Drive, Suite 102
Land O’Lakes, FL 34638

Any opinions are those of Independent Financial Services and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James and its advisors do not offer legal or tax advice. You should discuss any legal or tax matters with the appropriate professional. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Independent Financial Services is not a registered broker/dealer and is independent of Raymond James Financial Services.


Written By: Jodi Perez

As a CERTIFIED EXIT PLANNING ADVISOR (CEPA®), Jodi can work with business owners to help develop a team of professionals to create positive change and enable successful exits regardless of the timing.