Early Business Succession Planning Maximizes Benefits for Owners and Successors

By Brad Zimmerman

Successful small and medium-size business owners tend to focus most of their attention on managing the daily operations and growing their business’ profitability.  Many owners hope to one day sell their business to a third party, pass it down to the next generation of their family or turn it over to their employees, enabling them to retire with peace of mind that their legacy will continue uninterrupted. They often spend years doing this while overlooking the importance an exit strategy can have on their future, both individually and for the business.

Exiting a business can be emotionally difficult and financially complex. A well-planned exit strategy put in place several years before a projected exit date has been proven to reinvigorate organizations and bring relief to employees who may worry about what will happen to them in the future. The business owner will benefit by having time to groom talent, make changes to best prepare the next generation of leadership and increase their business’ value.

Today’s exit plans, also called business succession plans, legacy plans, and business owner estate plans, are a comprehensive roadmap for selling a business and creating the most value for the owner. They can also protect a business’s value in the face of unanticipated events and provide flexible options when the time comes to sell.

Succession planning is a complicated process that addresses a wide range of issues such as business valuation, ongoing business operations, income and estate tax liabilities, and numerous other considerations unique to each business and business owner’s situation.  In many cases, the business is the owner’s largest personal asset, which can in turn greatly impact their family’s estate plan. The importance to the owner of early planning cannot be overstated!

Clear communication is critical to successful exit plans.  If the owner’s family will remain involved in the business, all family members must understand their operational and ownership roles in the business. The same is true if a key employee or a management group takes control.  If selling the business to a third party, careful communication with key staff members and the workforce at large is crucial to keep morale and performance at peak levels.

I have handled many situations where a business owner who passed away left little in the way of an exit strategy in place other than a stated desire for the business to remain in the family. Often times this leads to the owner’s children and other family members being completely unprepared to run the business, and may create otherwise avoidable negative tax implications.

Early planning creates economic advantages and success for the current and next generation of owners…whomever they may be. That is the kind of legacy most business owners want to leave behind.

This article was originally published in September/October 2023 by stltoday.com, Missouri Lawyers Weekly, MetroWire Media, St. Louis Construction Forum, and St. Louis Constructions News and Review.

Brad Zimmerman is a principal at Carmody MacDonald and focuses his practice in the areas of business law, estate planning, and tax. Brad is a Certified Public Accountant and uses his accounting background and experience as the foundation of his legal practice.

This article is for informational purposes only. Nothing herein should be treated as legal advice or as creating an attorney-client relationship. The choice of a lawyer is an important decision and should not be based solely upon advertisements.