Succession Planning Is About More Than Choosing a Successor

Riegg Insights: Lessons Learned from Three Decades Advising Business Owners

A personal perspective from Christopher Riegg, CFA, CPA

One of the most persistent misconceptions I have seen about succession planning is that it starts with a simple question: Who will run the company next?

That is an important question, but it is rarely the first one I would ask.

For a privately held or family-owned business, succession can affect ownership, control, personal financial security, family relationships, employees, customers, and the company’s long-term value. Naming a successor addresses only one piece of that picture.

The more useful question is: What does the owner need the succession plan to accomplish?

That changes the conversation considerably.

Today’s Topic: What a Succession Plan Should Really Protect

1. Start With the Owner’s Objectives, Not the Organizational Chart

When owners begin talking about succession, the conversation often moves quickly to people. Is a son or daughter interested in the business? Is there a key executive who could take over? Does the company need an outside leader?

Before answering those questions, I prefer to understand what the owner actually wants.

Does the family want to continue owning the company? Does the current owner need liquidity? Is the goal to gradually step away or make a more complete transition? Is preserving control important? What does financial security outside the business need to look like? Those objectives shape nearly every decision that follows.

A successor may be highly capable and still not solve the family’s ownership, liquidity, or financial questions. That is why I view succession planning as an ownership strategy first and a leadership decision second.

2. Protect the Value That Has Already Been Built

Many owners have spent decades building a company, yet a surprising amount of its value may still depend on them personally.

They hold the key customer relationships. They make the difficult pricing decisions. Lenders call them. Employees come to them when something goes wrong. Important knowledge may exist largely in their heads.

That can work very well while the owner is actively involved. It becomes a vulnerability when the owner wants to step back.

A strong succession plan should ask whether the business can continue performing without one person at the center of every important decision.

This is one reason succession planning can improve a company even when a transition is years away. Developing leadership, strengthening systems, broadening key relationships, and reducing dependence on the owner can make the business more durable today while protecting its future value.

3. Treat Liquidity as Part of the Succession Conversation

For many business owners, a significant portion of personal net worth is tied up in the company.

That makes liquidity inseparable from succession planning.

An owner may want the next generation to own the company, but how will they finance the transition? A management group may want to buy the business, but does it have the financial capacity? An owner may want to retain some ownership while creating personal liquidity. Another may need a more complete exit.

Each situation creates different choices.

That is why I encourage owners to consider their personal financial objectives alongside their goals for the company. What the business needs and what the owner needs are connected, but they are not always the same.

A transition that works operationally but leaves the owner financially uncomfortable is not a successful succession plan.

4. Continuity Is About More Than the Person in Charge

Changing the name on the office door does not create continuity.

Customers need confidence that important relationships will continue. Employees need to understand where the company is going. Lenders and other stakeholders may need confidence in the next generation of leadership. Future leaders need enough experience and authority to make decisions before the transition occurs.

These relationships take time to transfer.

I have seen owners make the mistake of assuming that years inside the business automatically prepare someone to lead it. Sometimes they do. Sometimes they do not.

Succession planning gives you a chance to find out before the answer becomes urgent.

The question is not simply whether someone is available to take over. It is whether the company, its leadership, and the people who depend on it are prepared for that person to do so.

5. Preserve More Than One Good Option

Business owners understandably want certainty. Succession planning rarely offers much of it. Circumstances change. A family member who seems like the natural successor today may choose another path. A key executive may become a stronger candidate than expected. Market conditions may create an attractive opportunity to sell. An owner’s personal priorities can change.

A good plan should accommodate some of that uncertainty.

That is why I am cautious when owners commit too early to a single outcome without understanding the alternatives.

Planning should create options, not eliminate them.

An owner who understands the company’s value, liquidity needs, leadership capabilities, ownership alternatives, and financial position has much more flexibility when circumstances change. In my experience, that flexibility is one of succession planning’s most valuable benefits.

Final Thoughts

Succession planning is often described as preparing the next generation to lead. That is part of it, but the real responsibility is larger.

A thoughtful plan should protect the value the owner has spent years creating. It should address the financial needs of the people whose wealth is tied to the company. It should prepare future leadership and important relationships for change. And it should give ownership more than one viable path forward.
You cannot predict exactly what the business, family, or market will look like five or ten years from now.

You can prepare the company so that when circumstances do change, you still have choices.

Chris’s Closing Thought

“The best succession plans do not predict the future. They prepare the owner and the business for more than one version of it.”

If succession questions are beginning to surface in your business, I welcome the opportunity to compare notes. You can reach me at chris@promstrategy.com.

Related reading: Promontory Perspective – The Real Purpose of Succession Planning: Protecting Value, Liquidity, and Legacy

About Christopher Riegg

Christopher Riegg, CFA, CPA, is founder and partner at Promontory Strategy Group and the creator of Riegg Insights. For more than three decades, he has advised more than 200 business owners and executive teams on strategic and financial alternatives, including mergers and acquisitions, refinancing, recapitalization, and ownership transition matters.

Christopher Riegg, CFA, CPA
Founder & Partner, Promontory Strategy Group
Creator, Riegg Insights
chris@promstrategy.com