Ask a successful business owner whether they need a succession plan, and the answer is almost always yes. Ask whether they have one that would actually work if they were unable to come to work tomorrow, and the answer is often more hesitant.

The hesitation is understandable. Owners are busy running the business. Succession involves uncomfortable subjects: mortality, family dynamics, letting go. And the work spans so many disciplines, including law, tax, valuation, insurance, real estate, finance and management, that it is hard to know where to begin. This article describes why succession is harder than it looks and how owners can approach it as part of their broader wealth.

The business is the balance sheet

For many entrepreneurs, the business represents the majority of their net worth. Often it is intertwined with other assets:

• The building the business operates from is owned personally or in a separate entity and leased to the company.
• Personal guarantees support the company’s loans.
• Life insurance is owned by the company, by the owner or by partners on each other.
• Family members work in the business, own part of it or expect to.
• Retirement plans are sponsored by the business.
• The owner’s personal cash flow depends on salary and distributions from the company.

That interconnection means succession decisions cannot be made about the business alone. A change in ownership affects the real estate lease, the insurance, the estate plan, the family’s income and potentially relationships among heirs.

Four transitions, not one

“Succession” is often used as though it were a single event. In practice, it involves at least four transitions that may happen at different times and in different ways.

1. Ownership

Who will own the business: family members, partners, key employees, an outside buyer, an employee ownership plan? Through what structure and on what terms?

2. Leadership

Who will run it? Ownership and management do not have to pass to the same people. Many families keep ownership while bringing in professional management, or transfer management to a successor years before ownership changes.

3. Wealth

How will the owner and family convert business value into financial security? If the business is sold, how will proceeds be invested and taxed? If it is kept, how will the owner’s retirement be funded and how will heirs who are not in the business be treated?

4. Family roles

Who in the family works in the business, who owns it, who governs it and who benefits from it? What is fair to a child who has spent twenty years in the company compared with a sibling who has not?

Plans that address ownership but not leadership, or wealth but not family roles, tend to encounter problems precisely when they are tested.

Succession is not one transition. It is four: ownership, leadership, wealth and family, and they rarely move on the same schedule.

Common weak points

Outdated buy-sell agreements

Many companies with more than one owner have a buy-sell agreement that sets out what happens when an owner dies, becomes disabled, retires or leaves. These agreements are often signed early in a company’s life and rarely revisited. Common issues include valuation formulas that no longer reflect the business, fixed prices that were never updated, unclear triggering events, and funding mechanisms that no longer match the obligation.

Insurance structures that need review

Life insurance is frequently used to fund buyouts. How it is owned matters. In Connelly v. United States (2024), the U.S. Supreme Court held that, for federal estate tax purposes, life insurance proceeds received by a corporation to fund a redemption of a deceased owner’s shares were included in the company’s value, without an offset for the company’s obligation to redeem the shares. The decision prompted many owners and advisers to revisit entity-owned insurance arrangements and compare alternatives such as cross-purchase structures. Whether and how any existing agreement should change is a question for counsel and the CPA, but the case illustrates why arrangements should be reviewed periodically rather than assumed to still work.

Key-person exposure

If the owner is the company’s primary salesperson, technical expert, lender relationship or public face, the business’s value may depend on someone who cannot be transferred. Buyers, lenders and heirs all recognize this. Building a team and documented systems that function without the owner protects value regardless of which succession path is chosen.

Business-owned or owner-owned real estate

Real estate used by the business is often owned separately. That can be an effective structure, but succession raises questions: Will the property be sold with the business or retained? Is the lease at market terms? If heirs inherit the building but not the company, will they be the company’s landlord, and will that relationship work? If the business is sold, does the buyer want to lease or buy the property?

Liquidity for the estate and the buyout

An estate that holds a valuable business may still lack the cash needed for taxes, expenses and equalization among heirs. Federal law includes provisions that may allow estates with substantial closely held business interests to pay a portion of estate tax over time, but eligibility is technical and should be evaluated by the estate’s tax advisers. See Estate Liquidity When Family Wealth Is Concentrated in Real Estate.

Fairness among heirs

When one child runs the business and others do not, equal division of ownership can create problems for everyone: the active child works for siblings who have different interests, and the inactive siblings own an illiquid asset they cannot control. Equalization through other assets, insurance or separate classes of ownership are common approaches, designed with counsel.

Lack of a plan for sudden events

Many plans assume an orderly retirement. But death, disability and divorce arrive unannounced. A good plan includes contingency arrangements for who will make decisions, sign checks, talk to customers and lenders, and run the company in the first weeks after an unexpected event.

A framework for owners

Step 1: Understand what you own

Map the business and everything connected to it: ownership percentages, entity structure, governing agreements, related real estate, loans and guarantees, insurance policies, retirement plans and family involvement. Many owners find inconsistencies they did not know existed.

Step 2: Understand what it is worth, and why

An informed estimate of value, and what drives it, helps set realistic expectations and highlights where value depends on the owner personally. Formal valuations for tax, transfer or buy-sell purposes should be performed by qualified business valuation professionals.

Step 3: Define objectives

Keep the business in the family? Sell to partners or employees? Sell to a third party? When? What income does the owner need? What does the owner want for each heir? Clear objectives let the professional team design solutions rather than guess.

Step 4: Evaluate the four transitions

For ownership, leadership, wealth and family roles, identify the intended path and what must happen to get there.

Step 5: Coordinate the professionals

Succession plans typically require corporate and estate counsel, the company’s and family’s CPAs, business valuation professionals, insurance professionals, investment advisers, lenders and sometimes real estate professionals. Each should be working from the same facts and the same objectives. See Coordinating Attorneys, CPAs, Insurance and Wealth Advisors.

Step 6: Document and revisit

Businesses, families, tax law and case law change. Agreements, insurance and estate plans should be reviewed on a regular schedule and after significant events.

Questions every owner should be able to answer

1. If I could not work starting tomorrow, who would run the company, and do they know it?
2. Do we have a buy-sell agreement, when was it last reviewed and how is it funded?
3. How much of the company’s value depends on me personally?
4. Who owns the real estate the business uses, and what happens to it in a sale or at my death?
5. Where would my estate find cash for taxes, expenses and equalizing my heirs?
6. What do my children expect, and does my plan match?
7. Have my attorney, CPA, insurance professional and financial advisers discussed my succession plan with one another?

The business as part of the family’s wealth

The central shift for many owners is seeing the business not simply as an operating company but as part of the family’s overall wealth structure. Decisions about it affect liquidity, real estate, insurance, taxes, estate planning and relationships. Treating succession as a coordinated, whole-balance-sheet project, rather than a single document or a single transaction, is what turns a good business into a lasting family asset.