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Business Succession Planning in the Twilight of the Baby Boomer Era

Business Succession Planning in the Twilight of the Baby Boomer Era

How do these owners make their exits, transitioning the business to the next generation while preserving wealth for them and their families?

The reign of baby boomers owning successful businesses is coming to an end. As boomers enter their 60s, many are seeking to liquidate and retire. A recent New York Times article highlights this trend, referencing how bankers and brokers say there’s a significant increase in sales from business owners in their 60s and 70s who are ready to turn their creations over to a new generation of owners.

Now the question is: How do these owners make their exits, transitioning the business to the next generation while preserving wealth for them and their families? Though it may seem complicated, it doesn’t have to be; the key is to have a well-established succession plan, beginning at least three to five years in advance of a potential transition. Any less planning time invites a huge amount of risk. Even for those who haven’t yet decided on the exact year they wish to retire, planning and preparedness is key. An unexpected negative economic event or the untimely death or disability of a business owner could easily upend hopes and dreams for the future of the business and nest egg for the family.

Time is a critical factor for successful succession planning for closely held family businesses. It can take years for a business owner to work through issues such as estate and tax planning pre- and post- transition, the impact on the family and managing the emotions of letting go.

Perhaps the most important decision an owner needs to make is how to handle succession planning and whether management or ownership succession is most beneficial. Now, let’s take a step back and define each of these terms and highlight why they’re important.

Succession planning is the orderly transition of ownership, management or both, of a business at the time and manner of the owner’s choosing.

  • Succession planning may save the value of a business from a potential fire sale caused by an unplanned or unexpected transition.
  • It builds confidence in employees, clients and creditors that the business will continue.
  • It may even assist the owner in diversifying wealth outside the business, freeing up cash to invest elsewhere.

Succession planning, if done right, may elevate the family’s legacy role as leaders and philanthropists in the community. Oftentimes, business owners fulfill their entrepreneurial drive by joining and leading local foundations or charitable boards, post succession. Most importantly for the owner is knowing that the family will benefit from the preserved wealth of the business.

Ownership succession through a complete sale likely has an immediate financial benefit for the owner. It locks in the value of the business and obligates the purchaser to pay that price regardless of what happens to the business afterward. The owner is no longer tied to the day-to-day demands of the business, and is now free to pursue other life goals and dreams. New ownership can infuse the business with new ideas, capital and innovation to grow and sustain the business into the future.

Management succession provides for the continued economic benefits (and risks) of ownership without the demands of running the business. The leadership transition can gradually take place over time, which minimizes disruptions to the business, providing time to groom, assess and monitor the new management team. It also assures employees that the business will continue. A family management succession strategy enables family members to test-drive roles throughout the company. Instead of receiving keys to the full business, family members must demonstrate success before advancing to higher leadership roles. Management succession may also lead to hiring an external leader or team to bridge the time between the owner’s exit and the readiness of the next generation to assume leadership control of the business.

The right strategy for each owner depends on many factors. There’s no one-size-fits-all approach. It’s critical that the owner set aside enough time to work with his or her team of advisors, lawyers, accountants, etc., to choose the right path and plan accordingly.

Indeed, time is the owner’s friend. Time allows the business owner the greatest chance to maximize value and preserve wealth, while balancing estate and tax strategies with the needs of the family. Business owners should be encouraged to start their succession planning sooner, rather than later, to ensure they have an ample supply of this most-precious resource. 


Drew Horwitz is a Senior Wealth Planner in the Business Owner Advisory Group at Wilmington Trust.

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