Four Ways to Ensure a Succession Plan Works and The Eight Proven Steps to Success


The Goering Center Team

It’s estimated that 80 to 90 percent of all business enterprises in North America are family firms. As a group, family firms are our biggest employers, and make up the greatest part of America’s wealth. But they are complex and tricky enterprises, especially when it comes to generational transitions of ownership. About 30 percent successfully pass to the second generation, while only 10 to 15 percent last into the third.

In order to implement a successful ownership and leadership succession plan, businesses must address four key factors. Before we can understand how those factors help, we need insight into the unique challenges that family businesses face.

Unique Challenges

Contemplating transition brings up hard questions, and big decisions, that affect everyone involved. How and to whom do I transfer owner­ship and leadership? When and at what price? How can I let go? How much income will I need? What will I do, who will I be, and what will my life be like after the transition?

Potential successors face related issues. They often ask themselves: Am I ready? Can I do it on my own? Would I be happier doing something else? What is the business worth? How will I finance the purchase? Will I be accepted? Who can help me figure it all out?

There are four key factors that contribute to successful transitions of ownership.

  1. First, the owner/founder and potential successor must know their strengths, weaknesses, personal characteristics and develop­ment needs.
  2. They also must recognize the issues that will affect whether ownership transition is successful, or not.
  3. Both generations take time to understand the proven, time-tested processes available to deal with common issues.
  4. They consult knowledgeable, expert peers, mentors or advisors who understand their specific situation and provide ground­ing advice and support throughout the process.

Eight Steps to Success

Founders/owners and their “next generation” successors must identify succession planning issues and address them together in order for a successful transition of control and ownership to occur. If both generations invest the time to follow these eight steps, and if they do the eight steps in order, they will increase their chances for success. Be advised it’s not a quick fix and can take from two to ten years or more depending on circumstances.

  1. Build a proper foundation for succession to occur. Assess each generation’s readiness, and learn and practice proper communication techniques that instill respect and trust between all constituents. Employ tools like codes of conduct, family meetings and family charters to clarify understanding.
  2. Form a network of advisors, including attorneys, accountants and bankers, boards of advisors, and peer groups consisting of individuals from other family firms.
  3. Clarify your goals, communicate your expectations and develop contingency plans to address the operational and succession issues that could derail your efforts.
  4. Develop and implement a strategic plan. Understand your known unknowns, your unknown unknowns, and what’s changing in your industry.
  5. Work with your team of advisors to gain an informed perspective on valuation methods and financial structures. Be sure the method and structure that you choose is the best choice for your circumstances.
  6. Optimize your legal and tax structures by clearly understanding the goals and hurdles of the transition, the forms of transactions available to you, and the implications of taxes and timing.
  7. Communicate your plan to all of your constituents – family members inside and outside the business, team members, key customers and strategic partners – including your banker.
  8. Finally, develop a plan of action. Someone must take ownership and drive the process for a succession plan to be successful.

Apprehensive? You’re Not Alone

Studies show that many business owners fail to plan their succession. When lead­ers serve as the head for both business and family, they may believe that their succession wishes will be carried out posthumously – simply assuming their family will know what they want to hap­pen after their death and execute their plans accordingly.

What leaders often do not anticipate is the strife that occurs when a succession plan is not clearly in place. Commonly, the family or management team does not agree with the wishes of the leader that has passed away, resulting in dissen­sion and chaos.


Learn more about succession planning and eight steps to ensure success by viewing the NGI page.