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Succession Planning for Your Business? Here Are 5 Common Challenges Your Advisor Can Help Overcome

| June 15, 2022

Many family businesses are started with an eye toward establishing a lasting family legacy for future generations. If life unfolds as one hopes, the family and business matures, a successor emerges, grooming begins, and plans for the transfer of management and control are developed and implemented.  But life doesn’t always happen the way it is envisioned, and challenges can emerge along the way that make succession planning a tad more complicated.

In fact, challenges should be expected. After all, if it was easy, everyone would do it. But just because the succession planning process can be tim

Below is a list of common challenges we help our clients overcome when embarking on their succession planning process.

1) Choosing a Successor

Making the right choice about who is going to be the next CEO can be critical to a business’s survival. Of course, choosing a successor from within the family can be an emotional process and have lasting repercussions for both the business and the family.

With our clients, we typically see that choosing a successor can go one of two ways: (1) the business leader has a clear idea about who will be put in charge and is confident in their decision, or (2) the leader is at a complete standstill.

In the past, more traditional families have chosen the firstborn as their successor. While there is nothing inherently wrong with this model, we have found that business leaders have the most success when they go outside of inheritance norms and consider a broader range of candidates. This does not mean that firstborns cannot compete for the CEO position, only that a healthy assessment of potential successors should be held to determine the most fitting candidate for the company’s needs.

2) Confirming the Right Entity Structure

Evaluating your entity structure is critical to safely moving your business into a new generation of ownership because it has a significant effect on business taxation, personal taxation, and the company’s ability to transfer wealth. For a business to match its structure to its future needs, it is worth examining the pros and cons of several potential forms: partnerships

and limited liability companies, S corporations, and C corporations.

Keep in mind that a succession plan involves more than one kind of stakeholder—those who are significant owner-managers but want no active participation and those who want to remain in the business and contribute to its success. The former will likely want to monetize their investment while the latter will invest whatever it takes, personally and financially, to see it succeed. The entity structure and accompanying tax implications of said structure will affect the fortunes of both these groups. Not to mention that this decision will have a lasting impact on future options for business succession.

3) Getting an Accurate Valuation of the Business

The value of a business has a profound impact on many succession planning issues, including retirement plans, gift, and estate taxes, compensation levels, insurance, agreements among shareholders, and corporate finance strategies. But, not all business valuations are approached in the same way. In essence, there is both an art and science to getting the best valuation you can g

Perhaps the most critical thing to understand about getting a favorable valuation is that you should start working on it sooner than you think you have to. When businesses fail to take valuations seriously until a sale or transfer is at hand, they risk losing significant value and diminishing the effectiveness of their transition.

4) Managing Disparate Family Goals

As families grow and newer generations come of age, their goals and values tend to evolve and become increasingly diverse. One family member may be interested in preserving the family business at all costs while another may want to harvest the existing equity to start something completely new. Managing these different goals and values can be increasingly difficult as more family members become involved.

How each leader chooses to approach these competing visions will vary, but should (at the very least) always take into account the overall visions for the future of the business, while also considering the needs and concerns of the other stakeholders. That doesn’t mean that each stakeholder will necessarily get what they want. But, encouraging all parties to be a part of the succession plan grants them ownership in the process and ultimately improves the likelihood that the succession plan will play out as intended.

5) Quelling Your Doubts and Building Confidence in the Plan

“Succession planning is a difficult thing because it’s tied up with the hard-to-face fact that the owner is going to retire,” said Ritch Sorenson, Opus endowed chair in family business and academic director at University of St. Thomas in Minneapolis. “No matter how accomplished the children are, there may be questions about whether they can take over and run the business as well as the parents have done.”

Letting go of the vine is tough—especially after spending years pouring your heart and soul into the family business in hopes of seeing it succeed for generations to come. We have seen that the business owner leaders who tend to be the most confident in their decision-making are those who started planning early and enlisted the help of a business advisor like ourselves and other professionals you seek advice from like your CPA and or attorney.

Not only will your advisors assist you in developing a formal succession plan—which incorporates a business valuation, a buy-sell agreement, an estate plan, and other necessary policies to hand your business over to the next generation—but they will be there to help you when these and other challenges arise along the way.

The family enterprise can be a beautiful legacy to leave when all the necessary steps are taken to ensure its survival in the future. Our goal is to help you understand the value of your business, to preserve that value and future growth potential, and to pass it forward intact so you can see your business and family continue to flourish even when you yourself are no longer at the helm.


SA Piggush Financial Consultants and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.