Most business owners agree they must plan to pass on their business. Most business owners also admit they have no such plan. How do you make sure you have such a plan?

According to Manufacturing & Technology eJournal, “An estimated $6 trillion of personal wealth will be transferred over the next 10 years consisting primarily of privatively held or family-owned businesses. Once the founder is gone, too often the family business gets squandered away.”

My grandfather sold his patented cleaning solution door-to-door to business owners. He was a successful entrepreneur until one day he was hit by a car crossing the street and died. My family squabbled over how to run the business, fired executives who ran it better and eventually sold the company for a pittance.

Key to the collapse: My grandfather failed to implement a succession plan for his business and patent. A business owner can avoid many of the pitfalls my family faced simply by planning ahead.

The planning takes time and work. You need an expert team in place. You need a corporate attorney, an estate-planning attorney, a certified public accountant with vast experience with business owners, and possibly a valuation expert and a wealth manager specializing in the unique needs of business owners.

These experts help you pay attention to four aspects of the business:

• Maximizing the value of the company;

• Planning for the foreseeable issues;

• Planning for unanticipated catastrophic events; and

• Planning to reach your future goals.

Different exit strategies meet different objectives for entrepreneurs. Selling to a third party fits owners who want to monetize some or all the equity in the business. Selling to a strategic buyer that may look to beef up its own operations by adding your company, usually results in a higher payout and a quicker exit. A sale to a financial buyer may result in a lower payout and a slower, more transitional exit. Transferring the business to a family member works when leaving a legacy matters more than maximizing the value of the company on exit.

Selling to a management team or management buyout can provide a quick, confidential exit at a fair price, though likely not at the highest possible price tag. Equity or debt, or both, finance this strategy since capital providers like to see a management team staying invested in the company.

Most entrepreneurs like to consider liquidation/windup, or the sale of a company’s assets to settle outstanding accounts before the company dissolves — a last resort. Unfortunately, it happens more than most realize.

Defining your succession process involves several steps:

• Set your goals both from owner and family-member standpoint. Get the family actively involved. Realize after a sale, family members often live a lifestyle they may not have the money to keep up.

• Determine likely management succession. If the succession is family-oriented, will key management work for the other family members? If the company sells, will a new management retain existing supervisors and other employees?

• Implement the plan. Many times, completed succession plans just sit ignored and forgotten on a shelf. Your expert team helps ensure the plan’s development and implementation.

Your exit plan should include three objectives: personal financial security; maintaining harmony within the family; and getting maximum value for the business. Don’t end up like my grandfather and his family. Plan now.


Author bio: Certified retirement-planning specialist Scott Thompson is the co-founder of Thompson Wealth Advisors, a North Carolina-based registered investment advisory firm that specializes in helping business owners maximize the value of their businesses and preserve their personal wealth. Visit for more information.