As counter-intuitive as it may seem, at the same time that you’re developing and executing plans to grow your business, you should also be working on your exit plan, which can impact business decisions today and be a make-or-break factor in achieving your long-term goals.

According to Investopedia.com, “Data from the Bureau of Labor Statistics (BLS) shows that approximately 20% of new businesses fail during the first two years of being open, 45% during the first five years, and 65% during the first 10 years. Only 25% of new businesses make it to 15 years or more.”

At the same time that you’re striving to pass these milestones, there are more hurdles ahead. According to Score.org, as family businesses are handed down, 30% survive the transition from first to second generation; 12% survive from second generation to third; and just 13% of family businesses are still in the family after 60 years. That may not be bad news – if transitioning ownership outside the family was your plan all along. The important word here is “plan.”

Succession planning is a critical business owner responsibility that helps ensure your legacy continues the way you want. Even if you are not sure what that legacy is just yet, succession planning can help you figure that out, too. Then, as situations change and evolve, you can adjust succession plans accordingly.

There are two types of succession plans: one focuses on what will happen to your business and the other focuses on the talent you need to lead your business. They are closely inter-related – what you do with one has a big impact on the other, and vice-versa.

Business succession plan options are pretty straight forward: close it; sell it to outsiders or to your employees; or transition it to the next generation of your family. That doesn’t mean it’s easy to decide – each has its pros and cons, and each will enable a different legacy over time.

Talent succession plans can be a bit more complicated. You need one as a contingency should a leader (including you) or hard-to-find talent leaves unexpectedly (or even dies). You also need one for the long-term to ensure the next generation of leaders and talent are ready, willing, and able to take the reins once you are ready to pass them on. (When done correctly, long-term succession plans have the added benefit of driving employee engagement by showing employees someone at work cares about them; someone is encouraging their long-term development; and someone is providing them with opportunities to learn and grow.)

Succession planning may require anywhere from five to seven years lead time to develop and execute, as you may need to recruit, hire and acclimate new talent or ensure existing talent has the runway to learn everything needed before take-off. Once you have plans, make sure they stay relevant to changing business decisions and environment by reviewing them and making changes at least once a quarter. Perhaps most important is to get started on your plans now. Not having one has brought big name brands and family relationships to the brink of extinction, while strong, well-thought-out plans have led to success for generations.

One more thought: at the same time that you commit to develop succession plans, also consider getting your estate planning in order. As reported by Craft Brewing Business, “The federal estate tax, which applies to large estates at a rate of 40%, can have a crippling effect on businesses given to heirs without any kind of protections put in place. (Beals, Michael. “How Retiring Brewery Owners Can Protect Their Legacy.” December 2022. CraftBrewingBusiness.com)

RBT CPAs has resources that can help you on all fronts. Our advisory services professionals can help you think through succession plan options for your business. Our Vision Human Resource Services affiliate can help you with talent succession planning, a succession planning process, and recruiting. Plus, our Trust, Estate & Gift experts can help make sure the legacy you’ve worked so hard to build endures according to your wishes.

As always, our tax, accounting, and audit professionals are here to help free you up to focus on other aspects of your business – like succession plans.  To learn more, give us a call.