As a business owner, you know how much goes into creating strategies and plans for long-term success. Creating a well-executed succession plan that identifies and develops future company leaders that may include transferring ownership to them, ensures that the business you have built continues to grow. Here are some things to consider when developing a succession plan.

Local succession planning trends

Matthew Bisturis, shareholder at Schwabe, Williamson and Wyatt said that 2021 was an active time for local companies looking to transfer business ownership. He expects 2022 to continue with the same trajectory.

“In a survey of Washington and Oregon manufacturing companies that our firm co-sponsored, the number of companies with transition plans increased to 51% in 2021 over 41% in 2018, and 60% of respondents expect to transition ownership or leadership in the next two years,” Bisturis said. “Some of this trend was driven by uncertainty around possible tax changes in 2022, but in many cases, it was driven by a desire for business owners to step back from running their companies and ensure that successors are in place to run and manage things. People had more downtime during COVID to think about their plans and identify what is really important to them, their families and employees.”

Bisturis also said that the pressures of the pandemic accelerated the timing for some businesses but slowed it or others.

“Businesses that fared well during the pandemic and that are in attractive industries have been getting lots of interest from suitors — often from financial or strategic partners — interested in buying their businesses for premium prices,” he said. “For companies that are not positioned for — or do not have an interest in — selling to a third-party, transition planning has been challenging. The labor market is extremely tight, and attracting and retaining key employees with a desire, ability and financial means to acquire ownership has been more difficult. We have seen an increased use of incentives for key employees and in some cases have helped companies with creative planning to provide ownership pathways for employees that do not require them to become burdened with indebtedness right out of the gate.”

Jeremy Concannon, president of Innovative Packaging, said that his company recently underwent a transfer of ownership. The wholesale custom packaging provider was interested in partnering with a strategic buyer or private equity partner and initially had a letter of intent with one group. But due to the initial shutdowns and poor performance of the financial markets at the beginning of the pandemic, the deal was terminated. However, shortly after that, they were introduced to Shore Capital Partners, and with the help of Schwabe, Williamson and Wyatt, they finalized their partnership in January 2021.

“We have a unique recipe that has tremendous scalability and knew that we wanted a partner that not only aligned well culturally but shared the same vision,” said Concannon. “We found that partnering with Schwabe Williamson and Wyatt and their team of professionals helped us with all facets of the transition and partnership. Their experience with this type of transaction and their professional dealings with the General Counsel of Shore Capital was critical for the success of the deal.”

Tips for developing your succession plan

You have invested a lot of time, creative energy and finances into your business, so it is important to transition ownership and control in a way that achieves your goals for the business when you’re gone.

“Make sure the plan is written and includes goals and objectives, clearly defined tasks and accountabilities,” Bisturis said. “Develop a contingency plan to address buy-sell instructions, insurance considerations and what should happen if something outside your control occurs that would prevent you from operating the business. Complete a strategic analysis, business valuation, and personal, financial and business assessment. Consider all exit options and optimum deal structures and weigh the pros and cons of each in relation to your stated goals and objectives.”

Last, make sure you are ready to let go over the reins of your business. Sometimes, people think they are ready to transfer ownership, but when they realize that this means their work life will significantly change, they regret it.

“Consider and design a life-after-business plan,” Bisturis said. “Many owners regret their decision to sell if they do not have a plan for how they will spend their time and resources after the sale. Make sure that the succession plan is coordinated with estate planning objectives.”

Running your business requires you to juggle a lot of moving parts. Sometimes, business owners don’t understand how important it is to have a succession plan in place – even long before they choose to put it into action. Planning well in advance is always the best policy, as it can alleviate stress and help fine-tune any details that may pop up along the way.

A version of this article was originally published in the Vancouver Business Journal.

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