What “Succession” Means

What “Succession” Means

Chia-Li Chien, PhD, CFP®, PMP® Oct 29, 2018

Last week in my MBA class “Financial Planning for Privately-Held Business,” students voiced their understanding of succession planning from a 2014 video from Ash Brokerage. The majority of the students understood that life insurance products could be used to address a business’s continuity as well as liabilities in the company such as taxes. But one student argued that a lot more issues than just business continuity are addressed if the financial planning professional (FPP) provides a comprehensive financial plan for the owner.

The reality is that succession means different things to different people. There seem to be two general issues surrounding this use of life insurance identified from students’ discussion posts. The first one is the need for a life insurance review on a regular basis to avoid coverage lapsing. The second is that as the client’s business changes, there might be a need to restructure or replace the life insurance to meet future business needs.

First, let’s take a look at the types of succession. My 2015 article “Create a Business Succession Portfolio for Tomorrow” lists three types:

  • Employees’ Succession: most of the Fortune 500 companies have a succession plan in place for grooming their next leaders. But the majority of privately-held business has not yet caught up with the trend.
  • Customers’ Succession: As the industry’s macroeconomics change, the customers will change. The transition of getting the right type of customers to meet the company’s strategy is critical.
  • Investors’ Succession: The investors could be the founders, owners, or operators of their business. If the owner or investor is the operator of the business, then employee succession, as well as investor succession, both need to be considered.

In the 2014 video from Ash Brokerage, the life insurance financial product only addresses the liabilities of the owner as operator and investor and not the succession plan at all.

What can financial planning professionals (FPP) do to help their business-owner clients?

Without developing a succession plan for the owners, an FPP is in a tough spot to give any advice regarding succession. FPPs should recognize that they need to connect the business owner to the right team of advisors. Whether the FPP wants to be the quarterback (or project manager) for the owner depends entirely on the competency of the FPP. If the advisor is not familiar with the process, it is okay to refer the clients to someone who specializes in succession planning.

What can owners/ operators/investors do in their business?

The business owners need to have a good understanding the three types of succession. The timing to plan and implement may be different depending on the business owner’s situation. The odds of having a successful business is slim. But having a successful exit is even harder.

The three major factors impacting successful exit from privately-held businesses are, logically enough—timing, timing, and timing. So, what’s the big deal about timing? According to private capital expert Rob Slee, author of the best-selling book Midas Managers, three significant timing factors must be aligned when planning a successful business exit:

  • PERSONAL TIMING. The readiness of the owner to move on to something else.
  • BUSINESS TIMING. A substantial key management team able to operate with or without the owner or founder.
  • ECONOMIC TIMING. Where the economic cycle is and if the client industry is trending up.

You have full control of the personal and business timing. Unless you pay attention to building equity value in your business now, the economic timing can take control of your business value. How much equity value you want to cash out and transition into your next phase is entirely up to you.

Without a comprehensive financial plan or a succession plan in place, the financial planning professional is at a disadvantage in helping the business-owner clients. There is no shame in referring your business-owner clients to an advisor who specializes in succession planning, just like an FPP would refer clients to an attorney or CPA. When the FPP recognizes the client’s need, the referral is a sign of acting in the best interests of the clients. Next time, when the FPP hears about the life insurance for succession, it would be smart to ask about the overall plan, not just the financial product solution.


Ash Brokerage. (2014). Talking about misspent life insurance dollars – Top Business Succession Blueprints. Retrieved from https://www.youtube.com/watch?v=xnw1xE1e02s

Chien, Chia-Li. (2015). Create a Business Succession Portfolio for Tomorrow. Value Growth Institute Succession Blog.

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