Key Considerations in Succession Planning for Your Company
By James Thompson
As the baby boomer generation approaches retirement, we are witnessing an unprecedented shift in business ownership. Over 7 million privately held companies in the U.S. are owned by individuals over the age of 55, and it’s estimated that $16 trillion in assets will change hands in the next 15 years. For the industrial automation and material handling sectors, the wave of leadership transition is already well underway, and with it comes both challenge and opportunity.
Regardless of whether an owner plans to sell or pass the business to family or internal leaders, a well-designed succession plan is critical to preserving the legacy, value and continuity of the business.
Why Succession Planning Matters
In industrial automation, many companies are seeing increased competition from private equity backed firms entering the market. While some owners may consider a sale to these entities, others wish to preserve independence or transition leadership internally. A thoughtful succession plan provides options – whether for sale, generational transfer or employee ownership – ensuring business continuity and protecting years of hard work.
Succession planning isn’t just about finding the next CEO. It involves legal, financial, operational and strategic elements that must align to ensure a smooth handoff. Key stakeholders typically include owners, attorneys, accountants, wealth advisors and M&A professionals.
Here are essential considerations as you prepare your company for a long-term leadership transition:
1. Know Your Potential Successors
Whether internal or external, identifying potential successors early gives you time to train and mentor them. Successors might be family members, key executives or even external leaders brought in as part of a planned transition. In cases where a full or partial sale is considered, potential successors may include strategic acquirers or financial buyers. Understanding who could lead the company – and how they align with your values – is central to the succession conversation.
2. Understand What Drives Business Value
Industry-specific metrics can significantly influence how successors and investors view your company’s potential. In material handling, for instance, companies with a comprehensive service offering (engineering, implementation, aftermarket service) typically command higher valuations and are more resilient. Even if a sale isn’t on the immediate horizon, aligning your management team with performance targets that drive enterprise value is smart succession planning.
3. Explore All Transition Options
Succession doesn’t always mean selling 100% of your company. Owners can transition leadership while retaining equity, sell a minority stake or even structure a management buyout or employee stock ownership plan. The goal is to build a plan that matches your financial goals, timeline and desired involvement post transition. Flexibility in your succession strategy allows you to adjust based on evolving goals or market conditions.
4. Work With Trusted Advisors
Succession planning is not a one size-fits-all process. A strong team – including investment bankers, CPAs, estate planners and legal counsel – can help you map out the right path. Advisors who truly understand your industry will bring insight into best practices and common pitfalls, ensuring that the next phase of your company’s life is thoughtfully executed.
5. Plan for Tax and Legal Implications
The structure of a business transition – whether through asset transfer, stock transfer or internal succession – carries significant tax consequences. A well-advised owner will consult tax professionals early to model various scenarios and maximize long-term wealth preservation. In many cases, planning well in advance can unlock significant tax advantages for both the outgoing and incoming leadership.
6. Don’t Underestimate Working Capital and Financial Readiness
Even if a full sale is not planned, the business must be financially sound and operationally ready for new leadership. That means clear, timely financial statements: a strong understanding of working capital needs and robust internal systems that don’t rely on the owner’s daily involvement. If a sale is part of the plan, ensure your books can stand up to due diligence. But even for internal succession, solid financial management increases confidence in long-term viability.
7. Create a Timeline and Communicate
One of the biggest risks in succession planning is waiting too long. A good plan often takes three to five years to implement fully. Owners should define a timeline, identify leadership gaps and begin transitioning responsibilities gradually. Communicate your intentions early with family, staff and partners. Avoiding surprises ensures continuity and builds trust across the organization.
Final Thoughts
Succession planning is not just about stepping away – it’s about future-proofing the business you’ve built. Whether your goal is to preserve the family legacy, reward loyal employees or prepare for a strategic transaction down the road, a proactive and structured plan ensures your business thrives in the next chapter.
About the Author
James Thompson is the managing director at Alexander Hutton, a Seattle based investment banking firm. James holds an MBA from the University of Washington and is a former CEO, CFO and SVP of UK-listed HaloSource. He is a board member at Brown Strauss, Inc. For questions related to the content of this article, you may contact James at jt@alexanderhutton.com or at 206-852-6359.
