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Business Succession: What it Entails & Why it is Important

In short, business succession planning is figuring out how to transition a business interest to someone else. That’s an oversimplification, but that simple statement is the seed from which the giant tree of business succession planning has grown. The more detailed definition for this series is as follows:

The process of determining the method (how) to transfer ownership and management control of a business interest to the next generation, key employee(s), or third-parties. Business succession planning is a multidisciplinary process that requires collaboration among the full team of advisors including the CPA, Attorney, investment advisor, banker, insurance agent, valuation expert, etc. Do not forget about the business owner(s), the company’s CEO/CFO and other key executives/managers/employees, as they collectively provide the bridge between the analytics of the team of advisors and the application to this specific company situation.

The team of advisors and the business owners/executives/ employees cannot/should not independently navigate the planning process. Winston Churchill once said “He who fails to plan is planning to fail.” However, we must plan appropriately as Abraham Maslow once said “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” The point in juxtaposing those quotes is to show that business succession planning does, in fact, require a plan and that plan must be tailored to the specific needs of each, unique business. Without collaboration, the business owner/executive/employee group tends to default to the “failure to plan” camp, while the team of advisors tend to default to the hammer/nail scenario. The results are either no plan or a plan that doesn’t work (possibly worse than no plan).
 

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