Tuesday, February 7, 2023 Feb 7, 2023
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Expert Advice: Preparing Your Company for Life Without You

Private wealth management exec Kyle Wick offers three considerations for starting the succession planning process.
By Kyle Wick | |Photo courtesy of 22 One Advisors

Most business owners are incredibly resilient and adaptable individuals. They’ve dedicated a significant portion of their lives to building an organization that supports not only their loved ones but also their employees, vendors, customers, and, occasionally, even their communities. Yet, for many, it is hard to envision a time when they won’t be at the helm, and owners are often unsure how to begin a plan to transition out of their businesses.

A recent PwC survey found that just 34 percent of family business owners have a robust, documented, and communicated succession plan. Whether a business owner is several years or decades away from a succession, they need to begin planning that transition now to ensure the viability and continuity of their company, protecting their investment and all those who rely on it. Whether an owner has created a company from scratch or led it to new heights, building a carefully considered succession plan is one of the most important things they can do for their business. Here are three key elements to consider when beginning the process:

  • 1. Set Your Goals and Timeline

Whether an owner will rely on proceeds from the sale of their business to cover their retirement, or plan to reinvest funds into a new enterprise, it is essential to determine their financial goals and craft a timeline to begin a succession plan. Do they plan to leave the business at a certain age or when the company hits a financial milestone? Solidifying these answers will provide a foundation for success. 

  • 2. Determine a successor.

Figuring out who will take over the business will inform how the transition needs to be managed. Often, the most straightforward succession situations involve shifting ownership to an existing partner or employee. In this case, a direct approach is to create a buy-sell agreement that lays out the timeline and process for transfer and the agreed-upon price. Occasionally, business owners do not have a specific successor in mind, which can happen if a family member is uninterested or unprepared or if there are no clear employee candidates. Experienced advisers can help facilitate introductions to potential buyers, as well as bankers, accountants, valuation specialists, attorneys, tax specialists, and more. 

  • 3. Establish the company’s valuation.

Developing an accurate business valuation is essential to allow a successor to know what they’ll need to eventually pay to purchase the business. However, asking owners to put a price tag on something they’ve dedicated their lives to is not always the easiest task. Although there are other methods to consider, the three most used valuation methods are asset-based, market-based, and cash flow-based valuations. 

Kyle Wick is co-founder of Dallas-based 22 One Advisors.

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