Peace of mind

Mar 27, 2017

Succession planning is tough, but if you put a plan in place and are careful to re-evaluate as circumstances change, you can succeed.

Every privately-held/family-owned business can bank on a change in ownership and a change in leadership. With the baby boom generation that is at or near retirement, there is an above average wave of ownership and leadership changes expected in all privately held companies in the near term. Even still, studies have shown that most privately held companies have not developed a formal and written succession plan.

As the owner of a closely held business, you may be thinking a lot about what’s next for your business, family, and future. How well you manage and prepare for a succession event may be the decisive factor in the overall financial success of your business and its stakeholders. Wisely managing this event will help you capitalize on the fruits of your labor. Failing to plan for this event could throw your future into a tailspin.

While some may believe succession is years away, can you and the stakeholders sustain an unexpected event that accelerates the timing of this transition?

Developing a holistic succession and continuity plan that protects you and all stakeholders can provide peace of mind and reassurance. Given the obvious need and benefits of developing a succession plan, why do so many fail to do so? First, day-to-day operational demands seem more urgent than “long-term” succession planning. Second, more often than not, leadership has not been through a succession event, and the lack of knowledge and experience related to developing a plan can easily lead to procrastination.

It’s also important to remember that not all succession plans are equal. While a well-developed plan can perpetuate success, a poorly designed plan can lead to failure. While there are many, some common reasons why succession plans collapse include:

  • A failure to consider the perspective of all stakeholders, including shareholders, leadership, and family
  • Developing a plan by starting with a review of liquidity options, instead of first developing goals and objectives
  • A singular focus on tax driven planning versus goal driven planning
  • Failure to resolve conflict within the business or among stakeholders
  • Failure to pick and or train a qualified and capable leader(s) to succeed current leadership

An effective succession plan should include a thoughtful approach that accounts for the interplay between business, ownership, and family. If done correctly, a succession plan will align with your goals while addressing contingencies, gaps, and opportunities. As previously mentioned, many business owners fail to address succession due to lack of time and experience. Therefore, it is important to begin the process by identifying a lead advisor who can manage planning and implementation. This will help you efficiently use your time to develop a thoughtful and comprehensive plan.

The right lead advisor will begin the process with discovery. During this phase, the advisor works with you to gather information, identify stakeholders (which typically doesn’t just mean shareholders!), and clarify objectives. In the second phase – integrated planning – the advisor will work with you to compare your current state to your desired state and identify gaps, opportunities and risks, prioritize needs and develop a road map to meet business, ownership and family objectives. A critical component of succession planning is clarifying stakeholder objectives and reconciling differences when possible. The final phase of the process is implementing the plan you’ve developed. It’s critical for your lead advisor to be involved in this process.

Remember that succession planning doesn’t always revolve around planning for an ultimate sale to a third party. Through the succession planning process, it is common for the stakeholders to decide they want to remain “independent.” In that case, succession planning is still extremely important. Developing a plan to transfer ownership and remain independent requires a thorough evaluation of the facts, goals, and objectives. Also, remaining independent highlights the need to develop, retain, and/or attract the necessary leadership to perpetuate the business.

The brevity of this article means we’ve only scratched the surface on the issues and topics related to the development of an effective succession plan. However, one final thought – effective succession planning is a never-ending process that requires re-evaluation as circumstances change. Succession planning will likely always be a concern (as it should be), but having a plan in place will hopefully give you the peace of mind to get a good night’s rest.

J. Mark Lundy is a partner at BKD, a national CPA and advisory firm. He can be reached at

About Zweig Group

Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.