Effective Succession Planning: 6 Questions to Ask & 6 Steps to Take Before Getting Started

Throughout the years you spent many sleepless nights and long hours spent developing your products and pouring over financial statements. Today, new opportunities might be calling or maybe you just want to rest easy and reap the rewards of years of hard work. Whatever the reason, you feel it’s time for a succession plan so you can pass the torch and carry on with your golden years.

But wait! Simply deciding to close this chapter doesn’t mean the end of the adventure just yet. A successful exit and succession plan requires careful planning. Not only that, but it may also take a few years before the business is ready to change over. Whether the company is being sold, a family member is taking the reins, or the existing management team is stepping up to the plate, a proper detailed, well-documented and thorough plan is necessary to ensure a smooth transition.

So how do you begin?

Here are six questions to ask yourself as you prepare to start your exit plan.

1. Considering the needs of the owner, the business, and the family, who is the ideal successor?

There are many possible options:

  • Family member(s)
  • Management personnel
  • Buyer motivated for strategic reasons
  • Buyer motivated for financial reasons (private equity funds)

2. When do you plan to monetize your investment?

  • Are you thinking about selling all or part of the business?
  • Do you expect to monetize your investment over an extended period of time?
  • If you are leaving the company, how much time is needed to ensure a sound transition after the sale has been finalized?

3. Have you introduced your potential successor to your external advisors (e.g. bankers, accountants, and attorneys)?

  • This is key to ensuring a smooth transition
  • It provides a valuable training opportunity and inspires confidence in your successors’ abilities
  • It is also a way to reassure financial institutions that the finite details are being considered

4. What primary business issues need to be addressed right now?

  • Focus on the 10 key issues for maximizing business value
  • What measures should be taken to address weaknesses and optimize business value?

5. What is your company’s actual value and what are your expectations in terms of exit value?

  • Is this value realistic? Have you arranged for a proper valuation by professionals?
  • Does the projected amount meet your objectives and personal financial needs?

6. Have you optimized your tax planning strategy for the current period and for when you plan to leave the company?

  • Proper tax planning will enable you to maximize the income derived from the sale of the business



Once you’ve tackled these questions, what steps are taken to sell?

1. Identify targeted buyers

  • Use your network of contacts
  • Hire a professional team with extensive transaction experience

2. Draw up a confidential information memorandum

  • This document will be used to present the company to potential buyers, indicating its value.
  • Highlight the company’s principal value drivers and potential to prospective buyers.
  • Indicate trends in terms of financial results, e.g., sales, EBITDA, adjustments, targeted net working capital

3. Solicit interest parties

  • This step can be part of a formal or informal process.

4. Negotiate the contents of the letter of intent

  • The letter of intent should address the following issues: price, shares, assets or hybrid structure, net working capital, period of exclusivity, and closing conditions

5. Coordinate the due diligence review

  • Plan financial, legal and tax transactions with the help of your advisor

6. Negotiate the purchase agreement

  • The purchase agreement must set out the price, any non-cash considerations, representations and warranties, and limitations of the liability exemption clause.

Consulting a trusted advisor is crucial

It is important to have a good advisor for any business transactions in the succession planning process. This person or team must be able to provide extensive and objective financial and business expertise in accordance with your needs.

A company’s objectives and concerns change frequently, as does the manner in which it operates. Your advisor must be committed to meet with you regularly to ensure that decisions are being made based on the most recent information so that you receive practical and knowledgeable advice.

How we can help you

When we say our approach is holistic, we mean it. It’s centered around you. Not just your company; not only your legacy, you. We advise business owners and their families both personally and professionally. Our professionals, (from wealth management and estates to valuations, taxation, strategy, and beyond) work collaboratively to provide advice that makes the most sense for you and your objectives – because we know that your work affects your personal life, and vice versa – they are of equal importance. Through early, comprehensive planning, our professionals assess every situation and present options to help you make informed, strategic decisions to optimize your unique situation.


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