Three Steps For A Successful Business Transition
By JEREMY GRABER
Closely held businesses often do not survive the second generation. A poor or completely missing succession plan further reduces the chance of a successful transition. The risk of pitfalls, such as family infighting, unexpected closure, lost value or tax traps can be reduced by taking the time to develop and implement a plan — and it’s never too soon to do so.
Having a good succession plan in place is simply good business. It not only maximizes the value of your business for future generations, but also ensures the continuity of the business, which positively affects the livelihood of your employees and customers.
AVOID THE “DO NOTHING” PLAN
While there is no one right way to plan your business transition, there is a wrong way: the “do nothing” plan.
If you don’t plan for your business succession, Kansas law will do that for you — dictating who controls your company and receives your property. Ownership interests will be split, with one half going to your spouse and the other half to the children (or all to the children if no spouse). Each heir will inherit an equal and undivided portion of the business, which also means an equal vote. This could easily lead to infighting and deadlock. Additionally, disagreements and ramp-up time may lead to business interruptions and/or poor performance, driving down the value of the business. If there’s no plan in place, court involvement may be required, leaving the company — and your clients, vendors and employees — in limbo until it is sorted out.
The “do nothing” plan rarely works out for the best.
STEP 1: IDENTIFY AND PRIORITIZE GOALS
Business succession plans often fall into one of three potential paths:
Sale to an unknown third party.
Transfer or sale to a family member or close employee.
Closing the business and liquidating the assets.
Identifying your business goals, which may include achieving family and estate goals, may help you choose what is right for you. Some common goals include:
Maximizing the value of your business for you and your family.
Providing a livelihood for your employees and/or family.
Providing essential services for your community.
Cementing a family or personal legacy.
Avoiding taxes.
Thinking about and prioritizing your goals will help you select which approach is most likely to lead to your desired outcome. Additionally, consider whether your goals are feasible. Do your family members want to own the business?
If so, are they capable of successfully running the business? Once you have mapped out your overarching goals, it can be helpful to seek advice from a legal or business advisor when evaluating potential options. The three paths are not exclusive and you may want to take an alternative approach to your succession plan. Professionals can help you think through challenges or opportunities you might not otherwise foresee. For example, if you leave the business to your children, what happens if they can’t agree on how the business should be run? What happens if a child unexpectedly dies, divorces or becomes disabled?
Professionals can provide several options for these common scenarios. A good operating agreement or a separate shareholder agreement will provide procedures to cover contingencies that might arise. Having these types of plans in place can save time and money if something unexpected happens.
STEP 2: TAKE ACTION
Good succession plans should start at least several years in advance of any actual transition.
If you have not already, now is the time to seek out the help of professionals — legal, tax and perhaps others. You will likely need a will, trust or other instrument to legally effectuate your plan and ensure your assets are appropriately titled and transferred.
You may need changes to your organizational documents or the structure of your business to outline and implement the plan.
It is also important to examine the business finances and your personal finances to determine what makes the most sense from a tax perspective.
For example, it may be desirable to recapitalize with voting and non-voting interests to move the value of the business out of your estate for estate tax purposes. Utilizing non-voting interests can transfer the economic value of the business, while retaining the voting interests keeps the control of the business with you. This is an excellent strategy for intrafamily transfers.
Practical issues with the timing of your plan can be just as fatal as legal ones, and the plan you select can affect your timing.
For example, if you plan to transfer the business to a close family member, it may take time to train and acclimate them to the management of the business. There may need to be tough discussions with other family members who could feel left out. In some cases, you might initially pick a successor who does not work out and may need to start all over. Without sufficient time to tighten the screws, the initial plan may not work.
Practical and legal issues often intersect. It may make sense to bring your successor(s) into ownership years in advance. In this scenario, it would be prudent to enter into a buy-sell agreement, which is often a cornerstone of successful continuation plans.
These agreements typically prevent involuntary or voluntary transfers to third parties (i.e., divorce or bankruptcy), can offer liquidity at the death of the primary owner, and can provide reasonable protection for minority owners to ensure harmony.
STEP 3: KEEP THINGS UPDATED
Once you finish the plan, don’t just file it away. Updates and adjustments are required. Significant events like divorces, deaths, falling-outs and law or business changes will require adjustments to the plan.
Further, legal changes can materially affect your plan. The recent passage of the “One Big Beautiful Bill” extended and made permanent a higher estate tax exemption — from $14 million in 2025 to $15 million, indexed for inflation annually, reducing uncertainty for many business owners who were evaluating the prior law with an end of 2025 sunset.
You should brush off your plan every couple of years and make appropriate changes.
In sum, take the time to think about your goals and desires for your business transition. Talk to professionals who can provide you with insight and options. Take action to put those goals in motion. Don’t just set it and forget it; periodically review and update your plan.
When it comes to succession planning, the earlier the better. Being proactive will ensure your goals are met and your family, employees and our community will be better for it.
