Consider These Strategies, Tax Implications, and Best Practices

By Brenden Healy, CPA, and Greg LaCasse, CPA

Every business, no matter its size or industry, will eventually face a leadership or ownership transition. Whether you’re preparing to hand over your company to the next generation, sell to an outside buyer, or safeguard against unexpected changes, succession planning is essential for long-term stability.

Without a proper plan, businesses risk disruptions, tax burdens, and ownership disputes that can derail years of hard work. With the right approach, however, you can protect your legacy, ensure operational continuity, and set your successors up for success.

This article explores the long and short of succession planning, from minimizing tax liability to leadership continuity, buy-sell agreements, and even separating business from real estate.

The Long and Short of Succession Planning

Succession planning isn’t just about naming a replacement. It requires both short-term preparedness (what happens if a leader exits suddenly) and long-term vision (developing future leaders and owners). Key elements include:

• Business continuity: ensuring operations carry on seamlessly and maintain growth and profitability;

• Leadership development: training and preparing future decision makers; and

• Financial foresight: addressing tax, valuation, and funding considerations.

When structured properly, succession planning becomes an ongoing business strategy rather than a one-time event.

Simplifying Succession Planning for Any Business

Regardless of industry, the process of creating a succession plan can feel overwhelming. The good news? It doesn’t have to be. A simplified approach involves the following steps:

• Define goals. What do you want your succession plan to achieve (e.g., family legacy, maximizing sale value, employee ownership)?

• Identify successors. Whether family, employees, or buyers, start the identification process as early as possible.

• Valuate the business. Establish a fair and realistic company valuation.

• Create a transition timeline. Smooth handovers rarely happen overnight.

• Review regularly. Adjust the plan as circumstances and laws change.

A structured process reduces uncertainty and builds confidence among stakeholders.

Expanding Succession Planning Beyond Ownership

Ownership transfer is important, but it’s only part of the picture. Businesses also need to prepare for the departure of key employees whose knowledge and leadership are critical to success. Best practices include:

• Identifying talent pipelines to fill leadership roles;

• Documenting processes and knowledge to reduce dependency on individuals; and

• Developing retention strategies to keep top performers engaged during transitions.

This broader approach ensures the company remains stable, even if unexpected personnel changes occur.

Tax-savvy Succession Planning: Minimizing Liability for a Seamless Transition

Taxes can take a significant toll on business transfers if not carefully managed. From estate and gift taxes to income and capital gains tax, the wrong strategy can erode both business value and personal wealth. Smart succession planning may use strategies such as:

• Gradual ownership transfer to family or key employees to reduce estate tax exposure;

• Trusts to control wealth distribution, protect family assets, and minimize liability;

• Non-qualified deferred compensation or employee stock ownership plans (ESOPs) to achieve tax benefits while rewarding employees;

• Well-timed transfers to take advantage of favorable tax conditions; and

• Working with experienced advisors, ensuring your plan aligns with both business goals and tax efficiency.

Separating Business and Real Estate in Succession Planning

For many businesses, the company’s operations and its real estate are deeply intertwined. Separating them can create major advantages in a succession plan:

• Flexibility: future owners may run the business without needing to manage property.

• Income security: real estate can be leased, providing retirement income to departing owners.

• Tax optimization: distinguishing assets can open up favorable tax treatments.

• Conflict reduction: clear divisions prevent disputes among family members or partners.

This approach helps preserve both the business and the real estate value independently.

Five Business Succession Options and Their Tax Implications

Business owners have several succession pathways, each with its own tax impact:

• Family transfer: keeps the business in the family, often requiring careful estate planning.

• Trust structuring: provides asset protection and possible tax efficiency.

• Non-qualified deferred compensation or ESOP: offers employees ownership while reducing taxes.

• Selling to key employees: ensures continuity with those who know the business best.

• Selling to external buyers: can maximize sale price but may create higher tax exposure (which could be a good problem to have).

Choosing the right path depends on your priorities — legacy, value, continuity, or liquidity.

Avoid Succession Drama with a Buy-sell Agreement

If your business has multiple owners, a buy-sell agreement is critical. Without one, disputes over ownership transfers can quickly escalate. A well-structured buy-sell agreement provides:

• Clarity: establishes valuation methods, ownership transfer procedures, and purchase terms in advance.

• Continuity: helps prevent disputes and ensures a smooth transition of ownership when a triggering event occurs.

• Funding: identifies funding sources, such as life insurance, company financing, or other arrangements, to facilitate the purchase and transfer of ownership interests.

• Fairness: protects the interests of both departing owners (or their beneficiaries) and the owners who remain in the business. This legal safeguard minimizes risk and keeps the focus on running the business.

Conclusion: Building a Future-Ready Business

Succession planning is not just about preparing for retirement; it’s about protecting your company, employees, and legacy. By addressing leadership continuity, tax efficiency, and asset and ownership structures, businesses can transition with confidence.

Whether you’re running a family-owned, closely held business, are a partner in a partnership, or operate a growing startup, the best time to begin succession planning is today. The earlier you prepare, the smoother and more successful the transition will be.

Brenden Healy, CPA and Greg LaCasse, CPA are partners at Whittlesey with extensive experience in business valuation, succession planning, tax consulting, and strategic advisory services. Together, they help business owners develop transition strategies, maximize enterprise value, and position their companies for long-term success.