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Planning for a Legacy: Business Succession and Exit

How to provide long-lasting protection of your assets and plan for continued growth


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According to the U.S. Small Business Administration, more than 50 percent of small-business owners are over the age of 50. This means that half of the 28.8 million small business owners in the United States are nearing retirement age in the next 10 to 15 years. For these business owners, it’s time to start thinking about and creating a transition plan for successful business succession.

A well-thought-out plan can help prepare businesses for a smooth transition to the next generation or other persons without the loss of revenue, cash flow or consumer confidence. Families faced with developing a business succession and exit plan may want to consider working with a wealth management professional to help preserve the legacy of the operation.

They can help facilitate a phased and thorough approach that includes an inventory of assets, identifying the vision or goals for the business, structuring the estate plan and acting to carry out the established plan.

INVENTORY + ASSESSMENT

The initial step to completing a succession plan is compiling an inventory of assets. Establish a net worth of the entire operation, including all assets the business owns as well as a list of key people. “Key people” includes anyone who keeps the business running, including critical external partnerships.

Also, it is important to identify all potential beneficiaries who would be entitled to proceeds if the business were to be sold. This may seem daunting, but a comprehensive inventory of all assets and relevant documentation, like deeds, should be made. Additionally, it will be necessary to include a list of personal assets, like retirement accounts, which can have an impact on the liquidity of the overall assets and tax effects.

IDENTIFY GOALS

Although sometimes difficult, an established plan to communicate the goals and vision of the business is critical. The entire family should be included in these conversations, even those who have no intention of running the business in the future. Answering crucial questions such as, “What is the future of this this company in five, 10 or 15 years,” is necessary. 

It may help to call a meeting where everyone can voice his or her needs and expectations, and each can be addressed. Together, family and business goals are crafted with these needs in mind and the goals should then inform the plan’s details. The succession strategy should include naming a successor or successors who lead operations, deciding which assets to liquidate and transferring value as either ownership shares or monetary settlements. Open communication and intentional dialogue must be treated as a crucial component of a successful transfer strategy.

DEVELOP THE TOOLS

Proper estate planning provides clear direction for how to control property and assets during the owner’s life, and extends that control if the owner is disabled. After death, the succession plan guides fulfillment of the owner’s vision for the business operations, and takes care of loved ones. It is important to consider all aspects of personal and business wealth encompassed in the estate plan, including retirement income, estate taxes, asset distribution, business funding and any potential fees or taxes related to ownership transfers. Not all assets are appropriate for inheritance.

REFRESH + UPDATE AS NEEDED

It will be necessary to make sure that, even if the plan is years away from being executed, assets are titled properly. When assets are added or sold, or when beneficiaries or management change, remember to retitle the assets and consult with a wealth advisor. This can be the difference between leaving a gift and establishing a legacy. Wealth advisors can assist in explaining the estate plan structure and in facilitating the conversation about the strategy—particularly, why the plan is built the way it is.

For any business owner, inaction is an action that can hold undesired consequences. A phased and thoughtful succession and exit plan provides long-lasting protection of the assets they have built, which can continue to grow for future generations. 


Dana Abraham is UMB Bank president of personal banking.

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Dana Abraham

As president of personal banking for UMB Bank, Dana Abraham is responsible for the development and strategic execution of Private Wealth management and Consumer Banking initiatives.

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