Joseph Hahn

Executive Director, Wealth Planning & Advice

  • Although every business inevitably faces a change of control or ownership, many owners have no formal business succession plan in place.
  • A recent J.P. Morgan Wealth Management white paper (PDF) stresses the importance of preparing your business for what lies ahead and lays out some tips to help set up a successful transition.
  • Some key steps include building a succession planning team, objectively valuing your business, and incorporating financial and estate planning objectives.

If you’ve built a successful business, chances are you’ve poured your heart and soul into its creation and operation. After giving your all to make your business thrive, it can be difficult to consider what it might look like when you eventually step aside.

It’s important to recognize that every company will inevitably face a change of control or ownership. This process can be stressful – especially if an owner unexpectedly passes away or becomes unable to continue running the business. However, owners who get an early start and take a methodical approach to succession planning are more likely to pull off an orderly transition that enhances the value of their business and leaves them in a good position for whatever comes next.

The recently published J.P. Morgan Wealth Management white paper titled “Introduction to succession planning for business owners” (PDF) stresses the importance of preparing your business for what lies ahead and lays out some tips to help set up a successful transition. In this article, we cover the highlights from the paper, providing a jumping-off point for business owners who may be beginning to think about their succession plan.

Succession planning basics

Business owners looking to transition out of their role need a strategy for passing control to co-owners, heirs, management, employees, a third party, a strategic buyer or some combination of parties.

However, statistics show that many family-owned business owners miss out on opportunities to arrange a successful transition. In fact, only 35% of all businesses have established a formal succession planning process, while more than 61% of family-owned businesses in North America have no formal, written succession plan in place.1

It is estimated that around half of all exits from a business stem from one of the “five D’s” – death, disability, divorce, distress or disagreement. Businesses that establish a robust plan well in advance of any such eventualities are more likely to achieve a successful transition.

While every situation is unique, there are a few common questions you can ask yourself as you consider whether your business is ready for a transition. Can the business operate independently without your expert oversight? Is it feasible to transfer your business assets – including intangible ones like brands and patents – to a potential buyer?

Let’s look at a few basic steps involved in business succession planning. Although it’s unlikely to be an easy process, you can boost your chances of a successful transition if you get started early.

Step 1: Building your team

Like other complex and multifaceted processes, business succession planning is a team sport. Business owners will want to assemble a group of trusted professionals that may include a financial advisor, certified public accountant, business valuation expert, insurance advisor, investment banker and business broker. You also might want to seek input from members of your family and business management team.

While putting together your business transition dream team might appear to be a complex and costly challenge, it can prove to be worth the initial effort and outlay. A collaborative and experienced roster of experts can help guide you to an optimal result.

Step 2: Determining the value of your business

A critical early step in the succession process is working with an accountant or another professional to establish an objective business valuation. Developing an accurate snapshot of value in today’s market might require taking a step back from your close-up view of day-to-day operations, allowing you to dispassionately assess what is adding to or decreasing value.

Your accountant may be providing you with a baseline value of your business’ earnings before interest, taxes, depreciation and amortization (EBITDA), which appraisers can use to find a reasonable range of value. Valuation professionals provide another piece of the equation, helping you determine the range of multiples for comparable businesses.

Whether you value your business through a qualified appraisal or a more informal process, determining present value and comparing your business to others is a key part of the succession planning process.

Step 3: Personal financial and estate planning

Alongside the valuation process, you will want to engage in comprehensive financial planning. This can help you determine whether your current investments apart from your equity in the business will be sufficient to meet your retirement goals and other long-term objectives. Since a large portion of your net worth may be tied up in the value of the business, that value may need to be “harvested” to satisfy your goals.

Estate planning is another key element to consider. Working with a qualified estate planning attorney can help you limit the impact of incapacity on the value of your business, protect that value for the benefit of your family, minimize estate and income taxes, reduce the likelihood of family disputes and leave a lasting legacy.

Getting an early start

Making your business attractive to potential buyers means demonstrating that it is growing consistently and largely independent of its owners. This can require a team effort and typically won’t happen overnight – strategies for obtaining a harvestable value may take years to bear fruit. A common suggestion is that the process should begin at least three to five years before the desired transition.2

The initial stages might include “de-risking” your business – evaluating risk management guardrails for potential problems. This could involve establishing buy/sell agreements, where partial owners agree to buy or sell interests in the business to each other based on certain triggering events. You also may want to evaluate your life insurance and the other insurance policies in place to preserve your financial security and the health of your business.

Transition options

There are a limited number of paths to follow as you look to transition out of your business. In general, the opportunities can be broken down into “inside options” and “outside options.”

Inside options include an intergenerational transfer within your family, a management buyout, or a sale to existing partners or employees.

Outside options might encompass selling to a strategic third party like a competitor, a financial third party like a private equity firm or a buyer who is approaching entrepreneurship through acquisition. You may even be able to sell your equity in the business on the capital markets through a public offering.

Another possibility for exiting a business is an orderly liquidation – an organized sale of the business assets after which the business does not continue. Alternatively, your business may face a disorderly liquidation – the least attractive of all options that often destroys value and may financially harm your family, employees and community.

Determining what’s next for you

An often-overlooked component of succession planning is figuring out how you will achieve personal satisfaction after your exit from the business. If you don’t have a well-developed plan for what’s next, you may be disappointed after the transition.

Whether it’s an active retirement, pursuing hobbies or “bucket list” items, or engaging in other entrepreneurial activities, having a clear sense of your plans can be an instrumental ingredient of success. Working closely with family members, financial advisors and other professionals can help you personally prepare for the shift to post-business life.

The bottom line

A successful business transition typically requires a methodical planning process implemented over a period of years. Many business owners ignore this essential element of preparing for the future, often resulting in negative consequences.

A J.P. Morgan professional can help you create a personalized, written transition plan. Having a roadmap in place can help you understand what you need to address and when, leaving you in a better position to enter the next stage of life.



Benchmark International, “Family Business Succession Planning and Success Rates.” (September 2022)


Sean Hutchinson, “Value Enhancement Process.” Exit Planning Institute, 2023, page 13.

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