The Crucial Art of Succession Planning for Family Businesses

Succession planning is a topic that rarely gets the attention it deserves, especially in family-owned businesses. Yet, it’s one of the most critical factors in preserving a company’s legacy and ensuring its survival for future generations. 

I was recently a guest on the Action’s Antidotes podcast with Stephen Jaye and we discussed the importance of planning for business transitions, especially as founders or business owners approach retirement, including finding suitable successors and maintaining business continuity. You can listen to that episode here.

The Identity Challenge

One major obstacle I’ve noticed is the deep personal connection many founders have with their business. The company isn’t just a source of income; it’s their identity. Letting go or even considering a future where they aren’t at the helm can feel impossible. For instance, I often encounter business owners in their 60s and 70s who dream of retiring to sunny Florida but can’t bear to fully relinquish control. As a result, they take their foot off the gas, slowing growth and inadvertently diminishing the company’s value.

The hub-and-spoke model, where every major decision runs through the founder, only amplifies the risk. If something unexpected happens—illness, injury, or even death—the business can be left in chaos, unprepared to continue without its central figure. Addressing this is a delicate but essential conversation, one that can ultimately save the business from collapse.

Facing Family Dynamics

Another layer of complexity in succession planning involves family dynamics. Not every child or family member is interested—or even suited—to take over the family business. I’ve witnessed parents who struggle to broach the subject with their children, often hoping, perhaps unrealistically, that someone will eventually step up. Sometimes, it’s about helping them find alternative paths, like using the business’s wealth to support a child's dream of starting something new.

I also emphasize the importance of empowering a second-in-command or even building a robust executive team. This isn’t just about preparing for a founder’s eventual exit but about creating a self-sustaining, growth-oriented business that can thrive beyond any single individual.

Valuing Your Business Correctly

Valuation is another area that requires clarity. Family businesses often intertwine personal and business expenses, muddying the waters when it comes to true profitability. To prepare for a succession or sale, the business’s financials need to be clean and transparent. This often involves adjusting for things like non-business expenses and getting a realistic sense of the company’s value based on industry standards.

The Role of SBA Loans and Growth

Interestingly, many family businesses remain wary of debt, often influenced by the notion that debt is inherently bad. However, I encourage business owners to think strategically. If you can borrow at 7-8% and invest in a project that yields a 15% return, you’re leveraging capital wisely. It’s about shifting the mindset from fear to strategic growth and understanding the opportunities SBA loans can offer, especially for reinvestment or funding an ownership transition.

Looking Forward

Ultimately, succession planning isn’t just about spreadsheets and legal documents; it’s about aligning the founder’s vision with the company’s future needs. It requires emotional intelligence, patience, and a willingness to have difficult conversations. Working with family businesses has shown me the value of preserving legacies and safeguarding the livelihoods of not only the family members but also employees and communities that depend on these companies.

For those who have built something extraordinary and want to see it continue to thrive, now is the time to think proactively. Don’t let the statistics define your story. With proper planning, your business can be a lasting legacy that endures for generations.