Image of a business owner going through succession planning.


Three Main Elements of Succession Planning by: Dave Gaino, CPA, MTax, PFS | Chairman Emeritus/Principal – Tax Dave Gaino head shot

Succession planning does much more than simply choose who’s going to take over when an owner retires. A good business succession plan involves plenty of preparation so that both you and your company are protected for the foreseeable future.

The succession planning process digs into everything from minor details to big decisions covering each of the three main elements:

  • Time
  • Economics
  • Psychology

Each element plays a critical role in preparing you and your business for the transfer of ownership. That way owners know the timeline, what’s it going to cost, and whether the right people are taking leadership of your business.

Succession Plan Timing

Succession planning should start right when an owner opens a new business. This doesn’t mean that owners need to start selecting potential successors after a week in business, but it does mean that owners should continuously build the foundation of their business before they retire.

A clear, well-documented succession plan can take 3 to 5 years to implement. People think of the ownership transfer stage when they hear about succession planning, but there are many preparatory tasks that need to be done to make sure all company and personal matters are in order. That way owners aren’t stuck waiting for years after you really wanted to retire.

If an owner has done fundamental planning all along, three years is plenty of time to enact a successful transfer of ownership. If an owner hasn’t built a strong house, then it’s best to start having conversations about succession planning long before any transfer of ownership.

Succession Plan Economics

A good succession plan lets outgoing owners clearly understand what they need to live comfortably after they retire. A succession plan includes an economic stress test to see if an owner is financially prepared for retirement. This includes financial models, tax ramifications, and other information that will provide a potential reality check to the original plan. The discovered information then allows an owner to make the proper adjustments so that he or she will be able to live the same lifestyle long into retirement.

Succession planning covers more than just an owner’s financial situation. The planning process also reviews what the compensation package should be for the incoming owner or owners and whether anything should be done about existing employees. New owners will want to be compensated properly. Succession planning works out a fair package to reward them for undertaking the stresses of ownership.

When a new owner comes in, it might be time for some legacy issues to go. There may be employees on the payroll who happened to be at the right place at the right time. A thorough succession plan helps outgoing owners identify issues and either manage or eliminate them for the continued strength of the business.

Image of a business owner going through succession planning.

Succession Plan Psychology

There’s more to succession planning than financials and documents. The human aspect of succession planning is often overlooked and underappreciated. The evaluation of potential new owners is so critical to succession planning that Apple Growth Partners works with an industrial psychologist to make sure that you have the right people in place for the transfer of ownership.

For example, mistakes can be made when an owner assumes that a daughter or son is capable of taking over the company just because they’re related. In truth, they might not have the skills required for ownership. There’s also the possibility that they might not even want to take over the family business. An industrial psychologist can help uncover these issues or confirm if an owner’s son or daughter is actually capable of ownership.

The psychology of succession planning also applies to ownership candidates outside of family. It’s critical to have the right people in the right positions during a transfer of ownership. Owners don’t want to have their backs against the wall at 68 or 69 years old and find out that they have to start over or groom somebody else. These issues can be identified so that the right people can be put in place.

Developing the Right Succession Plan for Your Business

In a sense, succession planning is about asking critical questions at the right times. A succession plan helps business owners root out any issues and strengthen the business for long after they’re gone.

Succession planners are constantly driving the progress, checking in with people, and making sure they’ve done their part. This way a business can stay on a timeline that goes from the start to the finish line. If you want to prepare your business for the future, contact Apple Growth Partners today  about developing a succession plan roadmap for your business.