Financial Planning

Don’t Be Logan Roy: It’s Never Too Early to Plan Your Business Succession

June 08, 2023

By Joseph Confessore, Senior Vice President, Team Leader, Commercial Banking and Wealth Management, Certified Exit Planning Advisor (CEPA), and Kimberly McCarthy, Esq., Senior Vice President and Chief Wealth Client Services Officer

Don’t be Logan Roy.

In the popular HBO series “Succession,” domineering patriarch Logan Roy doesn’t trust any of his family members to take over the helm of his media conglomerate, so he refuses to plan for his succession, leaving the family and the business in turmoil upon his unexpected death.

While wildly entertaining, “Succession” delivers a sobering lesson on what can go horribly wrong if you don’t plan for and protect the future of your business.

Fewer than one in four private companies report having a succession plan in place.[1] It’s understandable. You are so focused on the day-to-day operations and immediate challenges of running your business that it’s easy to push planning for the future to the back burner. However, as the Roys learned, waiting too long to develop a succession plan leaves the organization vulnerable to disruptions and a leadership vacuum, putting at risk the long-term survival of your business and the preservation of the wealth you’ve built.

The bottom line: It is never too early to start planning your business succession.

Bring in the Professionals

The first step is engaging with qualified professionals (wealth and investment advisors, accountants, lawyers). Certified Exit Planning Advisors (CEPA) have earned a designation specifically to advise business owners on how to sell or transition their business successfully. Once assembled, your team should work with you well in advance of any solicitation or offer to navigate the complexities of succession planning and address not only the technical business items (such as corporate restructuring, business valuations, tax efficiency, and regulatory issues), but also the equally important human side of a successful transition (family dynamics, employee engagement and retention, corporate culture, change management).

Derisk the Business

Look at diversification in your client base and supplier network. Conduct a thorough review of your assets, liabilities, contracts, and customer relationships to ensure they are in order. Are business insurance levels adequate to cover interruptions or losses? This is a good time to organize your financial records, update your business plan, and address any operational inefficiencies. (Related: Thinking of Buying or Selling Your Business? Your Guide for Success)

Accelerate Business Value

Assess your competitive position and emerging opportunities, and ways to strengthen your assets, both tangible (e.g., cash, accounts receivable, inventory, and fixed assets) and intangible (e.g., reputation, workforce, supplier and customer relationships). It’s important that these assets are transferable to future leaders or potential buyers. Can your business function without you at the helm? Owner dependence is a major threat to succession plans and ongoing viability.

Develop a Tax Strategy

Early planning is especially critical to reduce or mitigate the tax impact of business succession. While some tax planning options can be identified and implemented at or shortly before a transaction, many require several tax years for maximum effectiveness. With sufficient time, for example, you can consider gifting plans for shares/interests, executive compensation plans, corporate-owned life insurance, redomestication (for the business) or change in residency (for the owners), and corporate restructuring. To minimize tax liabilities and optimize financial outcomes, you can (and should!) develop a multi-prong, multi-layer tax strategy tailored to your unique situation, so long as you start planning early enough.

Identify Potential Successors

Early succession planning allows you to cultivate a strong leadership pipeline, enabling you to maintain continuity and reduce the risk of a leadership vacuum. Ideally, the transition from owner to successor should be a gradual process over a period of years.

Communicate Early and Often

Early succession planning enables you to have open and honest conversations with your family members, partners, and key stakeholders to help to manage expectations, resolve conflicts, and align interests and objectives. Transparency and full knowledge are critical components to driving accountability and engagement with the process. If your business is a family-owned enterprise, it is crucial to involve family members in the succession planning process. (Related: How a corporate trustee might save Thanksgiving dinner.)

Washington Trust: Creating Success in Succession

At Washington Trust, we look at succession planning as an integral part of running a business, and we know what it takes to create a successful transition. Our multi-disciplined teams in Wealth Management and Commercial Lending have the experience and expertise to guide you through the process of developing a solid business succession plan that will help you build your legacy, prepare for your retirement, grow your business, and protect your assets. It’s never too early to start.

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