By Cynthia Adams Harrison, Managing Director — Center for Private Business Owners
Knowing where to begin sets the stage for a successful business transition. The process can be challenging and often delayed by the daily demands of running a business. We’ve found that asking the right questions can help kickstart succession planning for private business owners.
To prompt the necessary conversations and take the appropriate steps to successfully transition, consider this equation:
Emotional Readiness + Communication & Family Dynamics + Operational Effectiveness + Financial Considerations + Successor Readiness + Family and Business Alignment = Successful Transition
Below, we’ve outlined targeted questions for each component that can serve as your starting point to help assess your readiness and move your transition forward.
Emotional Readiness
Exploring your emotional readiness for transition — and thinking about these challenging questions — is the first critical step for being able to move forward and plan all the other next steps that must also occur to transition or sell your business. How would you answer these questions?
- Are you emotionally prepared to relinquish control of your business?
- Do you feel confident that you have explored all your succession options?
- Have you made peace with the idea of letting someone else make decisions or selling the business?
- Are you ready to hand over decision-making power for the day-to-day operations?
- Have you discussed your feelings about stepping down with family members?
- Are you comfortable with your post-transition role (e.g., advisor, mentor, consultant)?
Communication and Family Dynamics
As a business owner, how well you’ve communicated your plans about your business — with both family members and partners or employees — often helps determine if there are any unresolved issues that could affect the succession process. Answer these questions to help determine if your communication has been effective:
- Have you had regular, open discussions about the future of the business?
- Do family members feel comfortable expressing concerns or disagreements?
- Are there any unresolved conflicts within the family or among your partners?
- Have family members or partners been able to separate personal and business issues?
- Is there a clear process for resolving conflicts?
Operational Effectiveness
The efficiency and stability of your current operations will have a significant bearing on how ready your business is for a transition and the likelihood of its success. Where might you need to optimize efficiency? Who will assume your responsibilities once the business is transitioned or sold? Answering the below questions will help you plan for delegating operational responsibilities and consider a solid governance structure to support the transition and beyond.
- Have you started delegating key operational tasks to successors or managers?
- Is there a clear plan in place for gradually transferring day-to-day operations?
- Have you reduced your involvement in daily business activities in recent years?
- Is there a governance structure in place (e.g., family council, board) to support and oversee the transition, if necessary?
- Do your successors understand the operational responsibilities they will take on?
- Have you trained your successor(s) on the critical areas of business operations?
- Are key non-family executives supportive of the succession plan?
- Have you set up your organization’s leadership to be effective for buyers?
Financial Considerations
A comprehensive understanding of your balance sheet (assets, liabilities), cash flow and current valuation will help determine if your business is financially prepared for a change in ownership and its value. Also critical to consider is if your financial planning will support your lifestyle after the transition.
- Have you conducted a formal valuation of the business?
- Have you planned for your personal financial future post-transition (e.g., retirement, investments)?
- Are there sufficient financial resources (cash flow, liquidity) to support the transition?
- Have you considered tax implications for the ownership transfer?
- Are you financially prepared to step away from your salary as a business owner?
Successor Readiness (for Intra-family Successions)
Very likely, your level of confidence in your successors and their readiness/ability to take over leadership roles will directly correlate with your level of comfort in relinquishing control. If your successors are family members or partners who are not as knowledgeable in or prepared for the daily operations as you, then below are some helpful questions to answer:
- Have potential successors expressed interest in taking over the business?
- Have you identified a clear successor or group of successors?
- Do the successors have the necessary leadership skills and business knowledge?
- Have the successors demonstrated their ability to make sound decisions?
- Have the successors been trained in critical aspects of the business (e.g., financial management, operations)?
- Are the successors aligned with the long-term vision and values of the business?
- Have you communicated your expectations clearly to the successors?
Family and Business Alignment
Often overlooked, but critical to ensure a smooth transition, is whether you’ve been able to successfully align your family’s core values and vision with the future direction of the business. Understanding where differences may exist and working to close the gaps requires establishing a formal framework to discuss and document the future mission, values and goals of your business. To that end, consider these questions:
- Have you held family meetings to discuss the long-term vision of the business?
- Is there alignment between family members and successors on the future direction of the business?
- Is the succession plan documented and agreed upon by all key family members?
- Have you addressed any family concerns regarding the transition?
- Is the business aligned with the family’s values and long-term goals?
We Can Help
The professionals at the PKF O’Connor Davies Center for Private Business Owners understand the challenge of balancing daily demands with securing your business’s future. These focus areas and related questions highlight key considerations. Please continue your planning by contacting your advisor for more information or reaching out to the Center for Private Business Owners for assistance.
Contact Us
If you have any questions, please contact the PKF O’Connor Davies partner in charge of your account or:
Cynthia Adams Harrison, Ed. D., LICSW
Managing Director
Center for Private Business Owners
charrison@pkfod.com | 914.575.2744