What Is Succession Planning?

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Succession Plan

Succession planning doesn't have to be overly complicated. There are too many stories of families losing businesses or not being compensated for them because of the untimely death of the owner. So, what can you do about it?This blog post is intended for small to medium-sized business owners. Chances are you either started, inherited, or purchased your small business. It's your livelihood and your baby. So, what are you going to do when the time comes to retire? Maybe you're saying you'll never retire. Fine. But what would happen to your business if you got hit by a bus? Who would run the company? Would your family be compensated for the value of the business? All these questions are why succession planning is important.

In summary, you need to (1) prioritize your objectives, (2) identify who the right person is to take over the business and have effective communication, (3) decide on the mechanism for the transfer, such as life insurance, gifting, or an installment sale, and (4) execute. The goal, in the end, is to be able to execute the mechanics.

Mechanics of Transfer

  • Who will have ownership after the transition?
  • How will you determine valuation (e.g., determined at sale versus annually for three years after transition)?
  • How will the financing be arranged (e.g., self-financed, life insurance, bonus plan, gifting, installment sale, retained property-leaseback)? 



We can help you formulate the specific actions needed to effect a successful transition.


1. Retirement income (and funding other goals)

Have you put enough aside for your retirement income and other goals already, or will you be needing the funds from this succession plan sale for those reasons?

2. Tax optimization

Most people like to minimize the amount of taxes they pay, but, for many, it's not their top priority - optimizing for business longevity or for responsible heirs is more important. Do you have preferences when it comes to tax optimization?

3. Family integrity

If you could see your grandchildren as parents, what values would you hope they were passing along to their kids?

4. Business health and longevity

Is it important to you that your business outlives you? If so, do you want it to stay in the family, or would you be just as satisfied if there were other capable folks running it?

5. Personal legacy

Do you want to leave a personal legacy, beyond that of passing down assets to your children and grandchildren, such as supporting charitable causes?

Identifying and Preparing Your Successor

Many times, the right person is a long-time employee, a business partner, or an adult child. Maybe it is someone already in a key position or key role. You’ll want to ensure the successor is ready to take over. That usually means he or she is already involved in the business and, at the very least, the industry.

Search Funds and Permanent Capital

What if you don’t have anyone in mind for a successor? A search fund is a way for entrepreneurs, and oftentimes business school students or grads, to go out and search for a company to acquire. It could take months to years to find the right company and establish a succession plan or sale, so the entrepreneur raises funds from outside investors or family members. These can be identified via a simple google search, social media, or websites such as www.searchfund.org. Additionally, a lot of times these types of buyers acquire along the lines of “permanent capital”, meaning they don’t intend to sell or have an exit strategy, such as private equity firms. This can be more appealing to business owners.

Talk with your family first. Your children will likely want to be a part of the conversation, especially before any irreversible decisions are made about the company. You don’t want to alienate any children, regardless of whether they want to be a part of the business or not. It can be beneficial to start these conversations from scratch instead of relying on past conversations. Make it intentional and serious, and not in passing.

To sell or to mentor? If you decide that your kids (or even key employees) should have an increasingly important role in the future of your business, look to leverage their strengths.

Once the successor is identified, you need to determine the best selling arrangement and the terms. For example, for small businesses, this is often accomplished via a buy/sell agreement and funded by life insurance. The valuation mechanism will need to be determined. Trigger events will need to be stipulated such as death, disability, insanity, bankruptcy, or retirement. It sounds complicated, but it’s really not.

In most cases, an attorney will draft a buy/sell agreement outlining the terms. Then, a life insurance policy is purchased on the business owner, with the business owner’s spouse/descendant as the beneficiary. This can be purchased through a financial advisor, like us. Upon the trigger event, the life insurance policy pays out the value of the company to the designated spouse/heir and the successor takes over the business.

Maximize Your Business's Value

1. Introduce your successor to your employees, clients, vendors, and strategic partners. Let them know that their opinion is valued and that you want them to help the successor become successful. What should the successor know? What should the successor continue to foster and what should they change?

2. Let them prove their worth. Rather than giving kids a free pass to the corner office, it is valuable for them to do some of the grunt work with pride. Not only does this put the children in the shoes of those they might later manage, but it also helps win the support of non-family employees. Working for a competitor can help bring in new ideas and solutions, too. It can also serve as a filter for children who don’t “have it in them".

3. Have a plan for passing the reins. Most transitions happen either far too quickly or far too slowly.

Passing The Reins At The Right Pace - Not Just The Right Time

A transition that moves too slowly frustrates and demotivates successors, while one that moves too quickly yields unnecessary mistakes and pain for employees and clients.

Engaging Key Employees

Be sure to bring key employees into discussions. If they aren’t your choice for successor, they will still be playing an integral role in ensuring that your business doesn’t skip a beat.

The next step is the mechanics (repeated from above) and then execution. Don’t hesitate to reach out for assistance. Contact us today here at One Bridge Wealth Management. Also interested in investments and risk analysis? Find out which investment type typically carries the least risk.


Schedule your complimentary appointment with us here.