Financial Planning Essential tips for successful business transition planning

While most business owners expect to run their company until they’re ready to retire, unexpected “trigger events” could initiate a business transition at any moment. These events can include death, divorce, illness, business disruption, market consolidation, market timing opportunities, the decision to retire sooner than originally anticipated, and more.

Situations like these can be difficult to predict, but that doesn’t mean they should be left to chance. Proactive, comprehensive business transition planning can help owners overcome unexpected occurrences and promote a smooth business transition during this pivotal life event.

Here are some tips that can help you outline a transition strategy to enable a smoother, more adaptive business transition in any circumstance.

Because the type and timing of trigger events can be unpredictable, outlining a transition plan as early as possible can be important. Early planning not only potentially increases your ability to deal with the unexpected, but also may boost your chances of maintaining the prosperity and continuity of your finances, as well as your company’s, during a transition.

“It’s a big job to create a transition plan; you can’t just run a calculation and quickly figure out all of the answers,” says Russell Sanders, managing director of Truist’s Business Transition Advisory Group. “You’ve got to think about the bigger things in life, and that can be difficult for many business owners. Begin the process early to give yourself time to do it right. Start planning as close to your start date as possible, and no less than a few years ahead of any scheduled exit.”

While it may seem like common sense to plan ahead, actually doing so is much less common than you might expect. Only 26% of owners have created a business transition strategy.^{Disclosure 1} But being able to count yourself among the ranks of those who implement proactive planning can help create a smooth transition that has the potential to make you, your family, and the company prosperous.

Along with planning early, another important step to optimizing your transition plan is updating it on a regular schedule. That’s because even with a plan in place, a lack of periodic updates can leave your strategy too rigid to adapt—the last thing you want while trying to handle a transition and run your company at the same time.

“If you thought you were busy running the business, once that trigger event happens, your days become a lot busier,” says Sanders. “Everything is rushed, and you don’t really have time to think about the long term. Even with a strategy in place, it’s easy to become overwhelmed if that plan isn’t periodically recalibrated to harmonize with regulatory and legislative changes that have happened since its creation.”

For example, if you own a family business, you may want to revisit whether your transition plan accounts for the 2024 Corporate Transparency Act—which requires disclosure of any ownership stake exceeding 25%.^{Disclosure 2} A misalignment could derail an otherwise smooth leadership succession from you to other family members or create potential obstacles in the event that you’re attempting to sell the business.

Less than a quarter of the companies with transition plans have updated them in the last three years.^{Disclosure 1} So risks like these can be much more common than you might imagine. Preventing them frequently requires shifting from a set-it-and-forget-it attitude to an adaptive approach that treats planning as an ongoing process.