Business owners widely recognize the importance of succession planning, yet prioritizing this essential process can sometimes take a backseat to daily operations.
There are many common reasons for this, from time constraints to discomfort with the topic itself. However, exit planning is a key part of long-term success for any company as it minimizes vulnerability and risks to its overall health.
I sat down with exit planning experts to review the most common succession planning challenges and address six key questions:
- When should business owners start succession planning?
- How does succession planning ensure a smooth leadership transition?
- What steps should businesses take to preserve business knowledge and processes?
- What financial considerations are crucial in succession planning?
- How can businesses plan for unexpected leadership changes?
- Why is it important to consider company culture and employee welfare in succession planning?
Let’s dive in.
Key Succession Planning Challenges and How to Avoid Them
Though business owners may work in different industries, produce different products, and perform various services, they often encounter the same challenges regarding succession planning.
Challenge 1: Delaying the Succession Planning Process
Many business owners delay succession planning as they are often more focused on daily operations and short-term concerns that capture their attention. There is also a natural tendency to think there will be plenty of time before succession planning is necessary. However, an effective transition requires careful preparation and thoughtfulness.
Question: When should business owners start succession planning?
By making succession planning a priority early on, business owners set the foundation for a seamless transition that protects the company, employees, and stakeholders.
- Begin planning 5-10 years before the transition: A longer timeline helps business owners identify and develop future leadership for the company while providing flexibility to adjust the plans as circumstances change.
- Early planning supports leadership readiness: This approach ensures that identified successors obtain necessary skills and experience through mentorship and training. Supporting this leadership continuity also minimizes potential disruptions when the plan is executed in the future.
- Financial stability improves with a proactive approach: Owners can implement tax-efficient transfer strategies, such as through an Employee Stock Ownership Plan (ESOP). A well-prepared plan increases business valuation and ensures a smooth handover regardless of future ownership decisions.
"Too often, owners see succession planning as something to think about only when retirement feels near. But real leadership is about preparing the business to thrive without you—whether that transition comes in five years or unexpectedly tomorrow. The most successful exits aren’t just timed right—they’re planned right. A thoughtful succession plan is a gift to your people and the future of the business you’ve built." - Rob Dillon, CEO, OwnersEdge
Challenge 2: Unclear Leadership Transition
Confusion can occur when there is a lack of clarity in a leadership transition. While this often affects the internal working environment, it can also negatively impact the external perception of the company, from vendors to customers and even the broader community.
Question: How does succession planning ensure a smooth leadership transition?
The next leader should be prepared prior to stepping into the new role. This should include ongoing development that allows new leaders to step confidently into the position, allowing them to grow and thrive.
- Identify and develop future leaders early: Assess potential successors on quantifiable attributes, including skillset, experience, and alignment with company values.
- Consider the right type of successor: When planning a company's future, several options are available. Outside leadership can offer fresh perspectives if family succession or internal management candidates are limited. If external candidates are being considered or a change in company ownership is part of the plan, communicate this to key stakeholders to foster transparency and trust.
- Prioritize mentorship and leadership training: Provide hands-on experience, including gradually increasing responsibilities, to help a future leader develop. Encourage and welcome collaboration between current and future leaders to preserve operational knowledge.
“Without a clear and purposeful succession strategy, businesses risk internal conflicts, talent gaps, and a decline in overall stability.” - Lynnette Fritz, Chief Human Resources Officer, OwnersEdge
Challenge 3: Failing to Document Knowledge and Processes
A business leader takes more than an office nameplate and coffee cup home on their last day. Long-standing leaders leave with years of experience, insights, and have developed key internal and external relationships.
A structured and identified knowledge transfer approach will help businesses retain critical information that keeps operations running smoothly.
Question: What steps should businesses take to preserve business knowledge and processes?
A well-documented plan ensures successors can confidently step in and maintain continuity.
- Implement knowledge transfer strategies: Encourage hands-on experience before the handover and mentoring opportunities for job shadowing. This should include regular debriefs where key decision-makers document insights, challenges, and best practices.
- Create standard operating procedures (SOPs) and leadership playbooks: Clear, written guidelines can outline essential processes and workflows for new leadership. Developing decision-making frameworks will help successors ensure leadership continuity when making challenging decisions or addressing complex situations.
- Ensure successors are equipped with key relationships and operational insights: Before the succession occurs, introduce the new leader to identified stakeholders, including clients, vendors, and industry partners. Existing financial, operational, and strategic report access and review will provide a strong foundation for decision-making.
“A smooth leadership transition requires more than just naming a successor. That new leader needs mentorship and thoughtfully prepared resources that capture essential knowledge and insights for maintaining company continuity. Without this, even the most talented leader will struggle to step in effectively.” - Lisa Reardon, Executive Chair, OwnersEdge
Challenge 4: Overlooking Financial and Tax Planning
Succession planning also includes a clear view of the business's financial health before, during, and after the change.
Without a well-thought-out financial and tax strategy, business owners may encounter unexpected costs, valuation disputes or tax burdens that can affect the company’s stability. This is particularly true if a change in ownership is in the succession plan.
Question: What financial considerations are crucial in succession planning?
Financial planning is a key component of a successful business transition, ensuring both the company and the departing owner are set up for long-term stability. From valuation to tax implications, several financial factors must be carefully evaluated to create a smooth and sustainable succession plan.
- Understand business valuation and prepare for ownership transfer: A formal business valuation will help determine the company’s worth and ensure fair pricing. Succession planning can also explore different ownership transfer methods, such as selling to family, internal leadership, private equity ownership, ESOP, or cooperative.
- Implement tax-efficient exit strategies and estate planning: To minimize tax liabilities, structure the transition through trusts, buy-sell agreements, or gradual ownership transfers. Owners who are transitioning out should also consider estate planning tools to protect personal and business assets while ensuring a smooth transition.
- Engage financial advisors and tax professionals early in the process: Work with experts to navigate the transition’s complex financial, legal, and tax implications. Develop a financial roadmap that ensures liquidity and minimizes disruptions during the leadership change.
“Financial readiness must be a part of succession planning. Many business owners underestimate the tax and valuation challenges that occur. Advanced knowledge can mitigate many of these challenges. Working with financial experts well in advance ensures a smoother, more profitable transition.” - Christine Adee, CEO, OwnersEdge
Challenge 5: Not Having a Contingency Plan
Most people view succession planning with a long-term lens, but unexpected transitions can happen earlier. Sudden leadership departures, illnesses, and even death of a key organizational leader can create immediate succession challenges. Without a contingency plan, businesses may face operational instability, decision-making bottlenecks, and uncertainty among employees and stakeholders.
Question: How can businesses plan for unexpected leadership changes?
Having a well-defined backup strategy ensures long-term continuity for the company.
- Identify a stopgap leader to manage operations in an emergency: A trusted executive or board member can temporarily step in to maintain stability while the company deals with an unexpected leadership change. This person may benefit from training and exposure to leadership requirements, clearly outlined responsibilities, and access to key financial and operational documents while serving in this role.
- Develop contingency plans for sudden departures: A proactive protocol will help interim leaders handle related crises and should include a communication strategy for employees and stakeholders. All key roles should be defined, including that of the company board, top executives, or family members in interim leadership. This includes determining whether decision-making authority will rest with the board, an internal executive, or a designated family member.
“The strongest businesses don’t just grow – they stand the test of time. Preparing for the unexpected isn’t a sign of doubt, but rather a mark of wisdom. A well-crafted succession plan isn’t a safety net – it protects the value you’ve built, the people you’ve empowered, and the future you’ve envisioned.” - Rob Dillion, CEO, OwnersEdge
Challenge 6: Ignoring Company Culture and Employee Well-being
Though succession planning primarily focuses on the transition to a new leader, it’s important to remember the employees who contribute to the company’s success. Employees are the backbone of any organization, and overlooking their role in the transition can lead to disengagement, uncertainty, and even turnover.
A strong succession plan considers company culture and employee well-being to ensure business continuity and preserve the legacy of the outgoing leader.
Question: Why is it important to consider company culture and employee welfare in succession planning?
Company culture and employee welfare are critical in succession planning because they ensure business continuity, maintain morale, and support a smooth leadership transition. A well-aligned successor preserves company values, fosters employee engagement, and minimizes disruption, ultimately driving long-term success.
- Leaving behind a legacy means leaving the company in good hands: Employees who have been part of the journey should feel valued and secure during the leadership transition. Communicating information about planned leadership and/or ownership changes will help maintain trust and morale. Supporting cultural continuity will allow your business to evolve without losing the core identity.
- Reward employees for their hard work: Consider ESOPs or bonus structures to recognize and retain key talent and loyalty. Provide growth opportunities for long-term employees, ensuring they have a path forward under new leadership. One way to help employees understand the transition is to schedule open forums where they can ask questions and receive information about any changes before they occur.
“A leadership change impacts the entire organization. The most successful transitions honor employees, reinforce company culture and ensure the team feels secure in the business's future.” -Christine Adee, CEO, OwnersEdge
Challenge 7: Uncertainty Around Who to Sell the Business To
Many business owners nearing retirement or stepping away from day-to-day leadership often find themselves asking, “Who should I sell my business to?” Without a clear succession plan, this decision can become overwhelming and rushed, potentially compromising the business's value, culture, or continuity.
Question: How does succession planning assist in the process of deciding who to sell my business to?
Succession planning creates a framework that allows business owners to thoughtfully evaluate all available ownership transition options while aligning with both personal and organizational goals.
- Clarifies business goals and values: A good succession plan outlines the owner's financial, operational, and legacy goals. This clarity makes it easier to evaluate potential buyers or successors, from family members to ESOP holding companies.
- Identifies the right fit for company culture and legacy: Whether it's preserving the company’s mission, protecting employees, or maintaining customer relationships, a succession plan helps assess which type of buyer is best positioned to uphold those values.
- Prepares the business for a smoother transaction: When succession planning is in place, the business is often more attractive to buyers. It shows foresight, reduces perceived risk, and demonstrates leadership readiness and operational continuity—qualities that are especially appealing to strategic buyers or ESOP holding companies.
“Succession planning doesn’t just help owners decide when to step away—it also helps them decide who should carry the business forward. The earlier that vision is defined, the easier it becomes to find a buyer who aligns with it.” – Christine Adee, CEO, OwnersEdge
Succession planning should not be a one-time event but an ongoing process. As businesses evolve, leadership structures, financial landscapes, and company goals can shift, making revisions and refinements necessary and ongoing. Guidance from professionals, including financial advisors, tax specialists, and business transition experts, will help you make informed decisions.
For more guidance on creating a strong succession plan, download OwnersEdge’s Selling Your Business: Exit Planning Guide for Business Owners. This guide offers detailed insights on succession planning and can help you determine what type of transition might work best for your business.
To learn more about how an ESOP holding company works and how selling to a ESOP holding company could be the right fit for your specific exit plan, confidentially contact OwnersEdge today or review our related resources: