Family businesses are the backbone of our economy, particularly here in upstate New York where multi-generational enterprises have shaped our communities for decades. Yet statistics show that only 30% of family businesses survive to the second generation, and just 12% make it to the third (Family Business Association).
After working with business owners for over thirty years, I’ve observed that the difference between businesses that thrive across generations and those that falter often comes down to one factor: intentional succession planning.
Why Succession Planning Matters
Succession planning is about more than just determining who gets the keys to the business. It’s about:
- Preserving the legacy you’ve built through years of hard work
- Ensuring business continuity for employees, customers, and community
- Minimizing family conflict and maintaining relationships
- Enhancing financial outcomes for your retirement and family
- Transmitting not just assets but values and vision
For many business owners, their enterprise represents not only their greatest financial asset but also their life’s work and the embodiment of their values. Proper succession planning honors both dimensions.
The Two Paths: Family Transition or External Sale
Most business owners face one of two succession paths, each with distinct planning considerations:
Family Transition Planning
When transferring the business to family members, consider:
- Identifying the right successors based on interest, aptitude, and preparation—not just family position
- Creating equitable outcomes for family members not involved in the business
- Developing leadership capacity in the next generation before transition
- Structuring the financial transition to provide retirement security while minimizing tax impact
- Defining your ongoing role (if any) post-transition
External Sale Planning
When selling to employees, partners, or third parties, focus on:
- Maximizing business value through strategic improvements before sale
- Finding buyers aligned with your values and vision for the business
- Structuring the sale to enhance tax implications and provide retirement income
- Planning for your next chapter beyond the business
- Communicating the transition to minimize disruption
Some business owners pursue hybrid approaches, transferring operational control to family while selling equity to key employees or outside investors. The right path depends on your unique circumstances, goals, and family dynamics.
Common Succession Planning Mistakes
Over the years, I’ve seen well-intentioned business owners make several common mistakes:
- Waiting too long to begin planning, limiting options and creating rushed decisions
- Failing to involve key stakeholders in appropriate aspects of planning
- Focusing on tax and financial considerations at the expense of family dynamics
- Assuming interest or capability rather than carefully assessing next-generation readiness
- Creating rigid plans that don’t adapt to changing business conditions or family circumstances
Effective succession planning requires both technical experience and emotional intelligence to navigate the complex intersection of business strategy and family dynamics.
The Succession Planning Process
At Heritage Lake Advisors, we guide business owners through a comprehensive succession planning process:
1. Clarify Vision and Goals
Begin by defining what success looks like—for you, your family, your employees, and your business. Consider:
- What do you want your legacy to be?
- What role do you envision for family members?
- What financial outcomes do you need for retirement security?
- What values and business principles do you want to preserve?
2. Assess Business Readiness
Evaluate your business through the eyes of a potential successor or buyer:
- Is the business overly dependent on your personal relationships or expertise?
- Are systems and processes well-documented?
- Is the management team capable of operating without your daily involvement?
- Are financial records thorough, accurate, and transparent?
Addressing these factors early can significantly increase business transferability and value.
3. Develop Successor Readiness
Whether transitioning to family members or key employees:
- Create structured development plans for potential successors
- Provide graduated leadership responsibilities with appropriate mentoring
- Consider outside work experience before joining the family business
- Involve successors in strategic planning and decision-making
- Consider formal business education or leadership development programs
4. Create a Written Succession Plan
Document your plan addressing:
- Timeline for transition with specific milestones
- Roles and responsibilities during and after transition
- Financial terms including valuation methods, purchase structure, and tax planning
- Contingency provisions for unexpected events
- Governance structures for the transition period and beyond
5. Implement and Refine
Succession planning is not a one-time event but an ongoing process:
- Begin implementation 5-10 years before anticipated transition
- Review and adjust the plan annually
- Communicate appropriate elements to stakeholders
- Work with advisors to adapt to changing circumstances
Case Study: A Successful Family Business Transition
A manufacturing business owner in the Southern Tier approached us ten years before his planned retirement. With three children—only one involved in the business—he needed a plan that would treat all children fairly while ensuring business continuity.
Working together, we:
- Clarified his goals: Maintain business legacy, create retirement security, and treat children equitably
- Assessed business readiness: Identified key processes needing documentation and management roles requiring development
- Developed successor readiness: Created a leadership development plan for his daughter, including advanced education and graduated responsibilities
- Structured the transition: Used a combination of gifting, sale, and life insurance to provide equitable inheritance for non-business children while transferring the business to his daughter at a manageable cost
- Created governance provisions: Established an advisory board including respected industry figures to support his daughter’s leadership in early years
Today, the business is thriving under second-generation leadership, the founder enjoys a secure retirement, and family relationships remain strong despite the inherently complex transition.
Taking the First Step
If you own a family business, I encourage you to begin succession planning sooner rather than later. Start by asking yourself these questions:
- What do I want for the future of my business?
- What do I need financially from my business for retirement security?
- Who are the potential successors, and what development do they need?
- What advisors do I need to assemble to create an effective succession plan?
At Heritage Lake Advisors, we specialize in helping business owners create succession plans that address both the financial and human dimensions of business transition. We understand that your business is more than just an asset—it’s your legacy and often the embodiment of your life’s work.