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Succession Planning for Private Companies: Are You Thinking Ahead?

Mid-market perspectives blog: Growth enterprise services

Posted October 24, 2013

For a significant number of private companies, more often than not succession planning seems to be an afterthought. In fact, according to data from the National Association of Corporate Directors, three out of four private companies don’t have a formal succession plan in place.

Some business leaders are too caught up in the challenges of the present. Some have a subconscious aversion to the reality that they won’t be around forever, or assume succession will work itself out naturally. Others believe the complexity of the task makes it overwhelming.

Effective succession planning isn’t only about deciding who will run the business — it’s just as important to determine what kind of business those people will run. The ultimate goal of succession planning is to understand the value of the business, to preserve its value and future growth potential, and to pass it forward intact. There is no doubt it is important to pass the business on to effective successors. But before anyone gets a new parking space, the current generation of leadership has a lot of work to do.

There are a number of key issues, such as the right entity structure, the importance of valuation and different approaches to raising cash for transferring ownership that need to be considered as private companies set the foundation for effective succession planning.

Because so many of our clients have expressed a high degree of interest in this topic, Deloitte has introduced a multi-volume series, Business succession planning: Cultivating enduring value, to cover the wide range of issues that private companies need to consider:

  • Volume 1, The need for planning, details the necessary components of an integrated succession plan for privately held businesses and includes a quick quiz to help you assess the status of your succession planning.
  • Volume 2, Establishing a foundation, describes the pros and cons of different entity structures, explains how valuation methods can impact succession planning, and explores financing options.
  • Volume 3, Developing future leaders, outlines how management talent assessment, development and compensation planning can help you solidify the next generation of leadership for your company.

There always will be competing priorities for any business, but the question to consider is this: Are you potentially leaving the future of the business you’ve worked so hard to build to chance if you’re not making succession planning a priority for your company?

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