Most business owners have contingency plans to prepare for unexpected events, such as a supply shortage or cash-flow issues. However, most lack a succession plan, an orderly means of transitioning a business to the next generation and moving the business owner and their family into retirement. Doing this is critical, according to a recent Smart Business article, “Why planning your transition and exit well before it’s needed secures your legacy.”

Transitions without planning can create significant tax liabilities, including estate taxes. A thoughtful plan, created with the assistance of an experienced estate planning attorney, will lead to a better outcome for owners and their families.

Creating a succession plan should begin long before it will be needed; ideally, when the owners have created a successful business. It starts with considering what they want to happen to the business. Will the next generation take it over, or will it be sold to key employees? Will there be sufficient cash flow to sustain the business and support the original owners in retirement?

A plan can be created for the future without owners relinquishing control or making it public. Transferring the business as a whole, or certain assets, into trusts or companies with different structures may help protect the business and ensure a smooth transition to the next generation.

A professional valuation will need to be done by a forensic accountant once the business value is determined, and how shares will be distributed to family members, those working in the business and those who aren’t. Discussions held in advance of the transition will clarify the business owner’s rationale for the distribution plan and can help prevent disputes and litigation among family members.

One way to transition the business is to use valuation discounts—discounts for lack of control or lack of marketability—created by transferring minority interests. This is a common practice when gifting shares to family members or selling shares to non-family employees. Similarly, transferring shares to trust entities can also allow the owners to maintain control of the business.

Those seeking to equalize inheritance when some family members are in the business, and others are not. Annual premiums are paid for by the business, and the beneficiaries are the children who do not work in the business.

Another way to transition a business is to offer the exiting owner a cash stream as shares are sold. This is helpful for the buyer as well, as they don’t need the full amount to purchase the business outright.

A business owner can also divide business assets into separate entities and lease them back for cash flow. A good example is separating real estate from the operating business, which creates an ownership structure and generates income through leasing back or transitioning ownership to other parties.

Business owners running successful businesses should consider their next steps now, even as they are swamped with day-to-day operations. Talk with an estate planning attorney experienced in helping business owners protect their businesses and plan.

Reference: Smart Business (Dec. 30, 2025) “Why planning your transition and exit well before it’s needed secures your legacy”