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Developing a succession plan is vital for family businesses 

Family businesses are a big and important part of the economy and account for more than 50% of U.S. GDP, and 35% of Fortune 500 companies are controlled by families and family owned companies are responsible for 60% of jobs in America.

A recent family business survey conducted by the National Bureau of Economic Research’s Family Business Alliance indicates that only 15% of the family businesses have developed and documented anything appearing to be a succession plan. This is troubling because succession of ownership and leadership is a critical issue for the long-term success of a business. 

Respondents to a Family Business Institute survey that asked why their business did not have a succession plan said that “time to deal with the issue” was a significant constraint. Other reasons included feeling it was too early to plan for succession, inability to find adequate advice or tools to start, finding the topic too complex, not wanting to think about leaving the business, and fear of conflict with family or employees

The undesirable result of not having a succession plan is evidenced by the great difficulty in surviving through multiple generations. A family business surviving to the second generation is a milestone event because only 30% make it through the second generation. Furthermore, only 12% make it through the third, according to PwC in “The Family Business Sector in 2016: Success and Succession.”

What Is Succession Planning?

Succession planning is a critical factor for the long-term success of any business and especially for family businesses. Leadership transitions in business affect the entire organization’s continuity, employee retention, client retention and returns on investment. It is essential to create and implement a process that creates visibility, accountability and greater integration of all facets of the business.

All business owners will depart their businesses at some point by design or by default. A succession plan

helps ensure that owners have control over how their businesses transfer to the next owner. Succession planning

is the process of developing a written plan for transition of ownership and leadership when an owner and/or

leader decides to leave the business either voluntarily, such as retirement, or involuntarily, such as death or


What needs to be done to prepare for succession planning for the family business? A suggested outline of a strategically structured process for family business succession planning is presented here.

FIRST: Start with seven actions to strategically structure a succession planning process. 

1: Begin the succession planning process early.

2: Clearly determine and communicate the purpose, goals, and extent of the leadership succession plan or program.

3: Clearly define the desired and required qualities of the new leader.

4: Develop a clearly focused leadership development strategy.

5: Develop a talent management process that will incorporate strategic thinking for specific development opportunities for future leaders.

6: Identify future leadership candidates by developing a system for assessing current and future leadership needs.

7: Identify a system for communicating information to ensure that the leadership succession and/or development programs are in line with strategic business needs.

Next: Follow an overall outline of the suggested planning process to create a succession plan. 

I: Goals & Objectives

  • Develop vision & mission statements for the business.
  • Develop a list of core values & guiding principles.
  • Develop short- & long-term goals for the business.
  • Identify the stakeholders for the business.
  • Develop a personal vision with personal goals.
  • Develop retirement goals.
  • Create a team of advisors for the succession planning effort

II. Exit Strategy

  • Develop options for departures from the business.
  • Review the developed options for the exit strategy from the business.
  • Select the most desired option for the exit strategy.

III. Business Valuation

  • Obtain professional advice to determine the value of the business.
  • Determine the value of the business.
  • Determine a current value of the business assets & liabilities.
  • Determine the goodwill value of the business.

IV: Business Structure

  • Identify and quantify business debt.
  • Recruit & retain productive employees.
  • Structure business to maximize value.
  • Document key processes & procedures used in the business.

V: Tax Considerations

  • Develop financial goals.
  • Identify tax implications of the current business.
  • Plan & implement tax strategy to minimize taxes.

VI: Legal Considerations

  • Retain professional legal counsel.
  • Develop a buy-sell agreement for the business.

VII:  Estate Plans

  • Retain a professional estate planning adviser.
  • Develop an estate plan.

VIII. Successor Selection

  • Develop specific criteria for successor(s).
  • Recruit and select successor(s) based upon identified criteria.
  • Communicate selection of successor to stakeholders.

IX: Successor Training

  • Develop a list of characteristics and skills needed by successor(s).
  • Develop a training plan for successor(s).
  • Develop a coaching/mentoring plan for successor(s).
  • Establish a timeline for successor(s) plan.

X: Contingency Plan

  • Develop a contingency plan (based on the “What Ifs?”).
  • Research & identify insurance needs (disability; personal life; critical illness; business; key person; etc.).\
  • Select & train a key employee to take over in case of emergency or unforeseen event.
  • Communicate the plan to stakeholders & advisers.

XI: Implementation Plan

  • Document the roles, responsibilities & expectations concerning the transition of ownership.
  • Identify a facilitator to make sure the process of succession is carried out.

XII: Timelines

  • Identify the management transition timeline.
  • Identify transition of ownership of your business timeline.
  • Identify the complete business exit timeline.

XIII:  Communication

  • Document the succession plan.
  • Document how to proceed with the succession plan in the event of an unforeseen event (accident, illness, death).
  • Document the transition or exit strategy to inform family, employees, clients, vendors, community & all stakeholders.

I leave you with this additional thought on succession planning.

“One of the things we often miss in succession planning is that it should be gradual and thoughtful, with lots of sharing of information and knowledge and perspective so that it’s almost a non-event when it happens.” Anne Mulcahy, former Chairperson and CEO of Xerox Corporation.

Glenn Ebersole is a registered professional engineer and is the Executive Director, Strategic Business Development/Marketing for RCS Construction – a woman owned general contractor firm – in Collegeville, PA. He can be reached at 610-415-1130 or [email protected] 

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