Banking on Succession

Author:  Chris Schumann

Chris Schumann

Managing Director


Manufacturing & Distribution

201 N. Illinois Street, Suite 700
P.O. Box 44998
Indianapolis, IN 46244-0998 (46204)


Every privately held and family-owned businesses can bank on a change in ownership and leadership.  With the baby-boom generation at or near retirement, there's an expected above-average wave of ownership and leadership changes in privately held companies in the near term—yet, studies show most haven’t developed a formal, written succession plan.

As the owner of a closely held or family-owned business, you may ponder what’s next for your business, family and future.  How well you manage and prepare for a succession event may be the decisive factor in the financial success of your business and its stakeholders.  Advanced planning provides multiple transition options, while no planning results in no options.

Developing a holistic succession and continuity plan that protects your family provides peace of mind and reassurance to you and stakeholders.  Given the obvious need and benefits of developing a succession plan, why do so many fail to do so?  Either day-to-day operational demands seem more urgent than long-term succession planning, or leadership that hasn’t been through a succession event lacks the knowledge and experience—and procrastinates.

It’s also important to remember that not all succession plans are equal, and while a well-developed succession plan can perpetuate success, a poor design can lead to failure.  Here are some common reasons succession plans fail:

  • Not considering the perspective of all stakeholders, including shareholders, leadership and family
  • Developing a plan by starting with a review of liquidity options instead of developing goals and objectives first
  • Singularly focusing on tax-versus goal-driven planning
  • Failing to resolve conflict within the business or among stakeholders
  • Failing to pick and train qualified and capable leadership for succession

An effective succession plan should include a thoughtful approach that accounts for the interplay among business, ownership and family.  If done correctly, a succession plan will align with your goals while addressing contingencies, gaps and opportunities.  

BKD designed a three-phase succession planning process.  The process generally begins with discovery.  During this phase, you and your advisor work to gather information, identify needs and stakeholders—typically not just shareholders—and clarify objectives.  The second phase, integrated planning, involves comparing your current state to desired state, identifying gaps, opportunities and risks, prioritizing needs and developing a road map to meet business, ownership and family objectives.  A critical component of succession planning is clarifying stakeholder objectives and reconciling differences when possible.  The final phase is implementing the plan.  

Some action plans developed in the first two phases may not require immediate action, e.g., if the need to enhance your business’s value prior to a sale is identified, at least two action plans may result.  The first—the development and implementation of a business process improvement plan—needs immediate action.  The second—going through the process of selling the business—will come several years later.

It’s also important to remember succession planning doesn’t always mean a sale to a third party—in many cases, it doesn’t.  Through the planning process, it’s common for the stakeholders to decide they want the business to remain independent.  In that case, succession planning is just as, if not more, critical.  Developing a plan to transfer ownership and remain independent requires a thorough evaluation of facts, goals and objectives.  Also, remaining independent highlights the need to develop, retain and/or attract the necessary leadership to perpetuate the business.

BKD, LLP, one of the leading CPA firms in the country, has developed BKDnext®, a consultative approach and solution for privately held businesses to address their succession planning needs.  Whether your goals include perpetuating your legacy, third-party sale or gradual transfer to next level management, advanced planning allows you to maintain your options and achieve your ultimate financial goals.

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