Business Succession Planning: Lessons From Professional Athletes

By Jim D. Gaumond, Esq., Managing Member, Aevitas Law

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For a number of years, I had the opportunity to work with professional athletes on community and business initiatives. I was not negotiating contracts or representing players on the field. My work was focused more broadly on what they wanted to build, contribute and become beyond the game.

That experience taught me something that applies just as much to business owners as it does to athletes: eventually, the role changes.

For an athlete, the playing career may end. For a founder, it may be retirement, a sale, a transition to the next generation or simply the decision to stop being the person responsible for everything. The difficult part is that the role may have become inseparable from the person.

A successful athlete may have spent most of his life being identified with a sport. A business owner may have spent 30 or 40 years being identified with a company. The business may carry the family name. Employees may have worked with the owner for decades. Customers may call the owner directly. The company may represent financial security, personal sacrifice, family history and professional identity all at once. That is why succession planning is about much more than documents.

The First Question Is Not “Who Gets It?”

When business owners begin talking about succession, the conversation often moves quickly to ownership. A good business succession plan starts with questions addressing the owners goals.

• Who will get the company?
• Will the children own equal shares?
• Will a key employee buy the business?
• Should the company be sold?

These are all important questions to establish a succession plan, but they may not be the first ones. A better starting point is often:

What does the owner want the next chapter of life to look like?

That question changes the discussion.

• Does the owner want to leave completely or remain involved?
• Does he or she still want income from the business?
• Is preserving employment for longtime employees important?
• Does the next generation actually want to run the company?
• Is charitable giving part of the family’s vision?
• Does the owner want to mentor younger entrepreneurs, invest in other businesses, serve the community or finally spend more time with family?

Until those questions are answered, it can be difficult to know what the legal structure is supposed to accomplish.

Financial Independence and Personal Purpose Are Different Things

Professional athletes face this issue in a particularly visible way. A player may achieve financial success at an age when most people are still building their careers. Yet financial independence does not automatically answer the question of what comes next. Business owners can experience the same thing later in life.

A successful sale may solve the financial question while creating an entirely different personal one: Now what? That question deserves attention before the transaction closes.

I have seen throughout my career that people are often better prepared for the financial consequences of a transition than the human consequences.

• A founder who has spent decades making decisions may suddenly have no organization to lead.
• A parent who expected children to take over may learn that they have different ambitions.
• A family may discover that equal ownership and equal responsibility are two very different things.
• A successful transition therefore requires more than determining value and preparing documents. It requires an honest discussion about purpose, responsibility and expectations.

The Next Generation Needs a Choice

Another lesson from working with athletes is that opportunity and expectation are not the same thing. A parent may see a family business as an extraordinary opportunity. A son or daughter may see it differently. Neither side necessarily has to be wrong.

Before designing a succession plan around the next generation, families benefit from asking direct questions.

• Do the children actually want to participate?
• What roles interest them?
• Have they been given opportunities to learn the business?
• Do they understand the financial realities and responsibilities involved?
• Are they being prepared to lead, or simply expected to take over?

Sometimes the answer will be a family transition. Sometimes it will be a sale. Sometimes one child will operate the business while others participate economically in different ways.

The important thing is that the plan reflect reality rather than assumption.

Build the Advisory Team Around the Goal

Transitions also tend to expose another problem: advisers often work on different pieces of the same puzzle without enough coordination.

A lawyer may be addressing ownership documents. A CPA may be evaluating tax consequences. A financial adviser may be considering retirement income and investment strategy. A charitable adviser may be discussing philanthropy. A lender or valuation professional may be involved as well. Each recommendation may be perfectly reasonable on its own. But the owner has only one life and one business. The better approach is to begin with the owner’s goals and then bring the appropriate advisers into the same conversation.

At Aevitas and across our broader family of businesses, that coordinated perspective is something we are intentionally developing. Legal, financial advisory, accounting and tax, and charitable-planning considerations often intersect. They are separate disciplines with different responsibilities, but important decisions are frequently better when those disciplines are working from the same understanding of what the client is trying to accomplish.

That does not mean every client needs every service. It means the planning needs to fit together.

Legacy Is Bigger Than Ownership

Perhaps the most important lesson is that legacy is not simply who receives an asset. For an athlete, legacy may involve family, community, philanthropy, entrepreneurship or mentoring the next generation. The same is true for a business owner.

The legacy of a company may include the people it employs, the customers it served, the values it represented and the opportunities it created.

A business transition can preserve some of those things, but only if the owner identifies them as priorities.

That is why one of the questions I like most in succession planning is also one of the simplest: What do you hope is still true five years after you step away?

• The answer might involve financial security.
• It might involve the company remaining independent.
• It might involve children working together.
• It might involve longtime employees having opportunities.
• It might involve giving back to the community that supported the business.
• Or it might simply involve the owner being able to enjoy the next chapter without constantly wondering whether the business will survive without him or her.

Whatever the answer, it gives the planning a purpose.

Plan for the Life After the Transaction

Athletes know from the beginning that the playing career will not last forever.

Business owners know the same thing about their time at the helm, although it can be easier to postpone the conversation. Eventually, every owner leaves the business. The question is whether that transition happens by design or by circumstance.

Good succession planning addresses ownership, taxes, documents and financial security. Great planning also asks what happens to the people involved when the titles change. Because the real objective is not simply to complete a transaction. It is to create a next chapter worth entering.

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