Top 3 Factors That Stall Succession Planning in Family Businesses

By Brian Baum, CEPA®, CFP®

Many of our clients have built their companies from the ground up. Understandably, it can be hard to let go. Family businesses often don’t know how to manage the inevitable transition of ownership. If that sounds like you, we can help.

Interchange Capital Partners has experience helping family businesses navigate this important transition. We provide comprehensive valuation and succession planning so our clients can feel confident and comfortable when handing over the business to the next generation of leaders, whether it be family or otherwise. Let’s take a look at the three most common obstacles to implementing a plan for the transfer of ownership.

1. Business Is Booming

Why make changes when business is flourishing? The idea of future potential business growth is more exciting—and more important—than working on a succession plan, right? Wrong. We can’t predict the future, but we have seen this movie before. What if a health issue or other factor leads to the unexpected departure of a key person or owner? 

We understand working on the day-to-day is important, and you want to be as successful as you can, thereby choosing to spend time on business-growth initiatives while pushing off the future transition. But should something happen to you, you need to ensure you’ve left a clear plan (with solid direction and written wishes) in your stead.

At Interchange Capital Partners, we use a 3 Phase process for business exit planning. It includes: identify and quantify, maximize and protect, and transition and transact. The goal is to maximize the value of your business, mitigate the taxes, make sure you have enough cash to live your life, and keep you in control until you are ready to hand over the reins. 

2. Stuck in the Day-to-Day

Do you feel like your plate is filled with running the business and you don’t have the time to create a succession plan? You’re not alone. Many business owners fall victim to the rolling 3-to-5-year exit plan. They may be telling others their exit will be 3 to 5 years from now, but time keeps passing and year after year nothing changes until you find yourself 10 years down the road and no closer to your transition goal. 

However, you can still work toward the succession and create a longer transition period if you choose. It might make more sense to work backward by asking yourself:

• Who is the ideal candidate to take over the business?
• When do I want to be out?
• How long will it take to complete the transition?

3. Hesitant to Make an Exit

Financial Concerns

Oftentimes, you may find that as a business owner, you have too much personal wealth tied to the business. In this case, the business itself might not have enough value to sustain the owner’s lifestyle after retirement. That is why it’s important to start succession planning early so you’re not caught off guard by the long-term costs of retiring. In short? Make sure the business can operate without you, and you without it.

Gradual Succession

Maybe you have held off on initiating certain business strategies, potentially making it more difficult for the next owner to succeed. Now would be the time to delegate tasks and initiatives to other employees or family members that you see as being a good fit. This allows the next generation of leadership to show their capabilities with your oversight. This will give you more comfort before withdrawing from the business.

How We Can Help

It’s important for your family business to have a concise, actionable succession plan. At Interchange Capital Partners, we will help you navigate the unique challenges facing your family-owned businesses when it comes to exit planning and succession planning. Reach out to us today by emailing team@interchangecp.com or calling our office at 412-307-4230 to schedule an introductory appointment. 

About Brian

Brian Baum is the managing director of Interchange Capital Partners, an independent registered investment advisory firm providing family office and transition strategy services to family businesses. With 10 years of experience, Brian spends his days working with our clients to determine ideal strategies to simplify and optimize their processes and the future of their business. He is known for his attention to detail and going the extra mile to become familiar with the dynamics surrounding each situation so he can offer customized and creative guidance. 

Brian has a bachelor’s degree in psychology with a minor in business from Penn State and is a  Certified Exit Planning Advisor (CEPA) and CERTIFIED FINANCIAL PLANNER™ professional. Brian is also the president of the Pittsburgh Exit Planning Chapter, which he helped found in 2019. The chapter’s mission is to give business owners a forum to become educated on how to build a valuable and transferable business through a proven process. Outside of work, Brian enjoys spending time with his wife, Natalie, and their daughters, Quinn and Blair. He is also an avid golfer and likes the occasional scotch and cigar. To learn more about Brian, connect with him on LinkedIn.

Interchange Capital Partners, LLC, (“INTERCHANGE CAPITAL PARTNERS”) is a registered investment adviser with the Securities and Exchange Commission providing investment advisory and financial planning services. Any reference to the terms “registered investment adviser” or “registered” does not imply that INTERCHANGE CAPITAL PARTNERS or any person associated with INTERCHANGE CAPITAL PARTNERS has achieved a certain level of skill or training. A copy of INTERCHANGE CAPITAL PARTNERS’s current written disclosure (ADV 2A Firm Brochure) discussing our advisory services and fees is available for your review upon request. INTERCHANGE CAPITAL PARTNERS, in addition to providing investment advisory and financial planning services, provides business consulting services. In connection with its business consulting services, INTERCHANGE CAPITAL PARTNERS does not provide tax or legal advice.

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