Common Mistakes in Business Succession Planning (and How to Avoid Them)

Legendary investor Warren Buffett (who knows a thing or two about managing businesses) surprised his millions of fans and followers in May 2025 by announcing he would step down as CEO of Berkshire Hathaway at the end of the year. While the timing of Buffet’s handover was unexpected, the identity of his successor (Berkshire Vice Chairman, Greg Abel) was not, as the “Wizard of Omaha” had made this aspect of his succession plan clear four years earlier.

In this article, we discuss business succession planning, what it involves, why it matters, and how to avoid common pitfalls associated with this essential aspect of maintaining vitality and continuity in any business.

In a nutshell, succession planning involves identifying and training employees to take on key positions to prevent disruptions when someone who holds a given role leaves or retires. For privately held companies (including family-owned businesses, which have unique dynamics), it also includes planning for an eventual transfer of ownership. 

What are the Financial, Operational, and Emotional Stakes in Succession Planning?

Many businesses neglect business succession planning, but this is not a “nice-to-have.” Life almost guarantees there will be a surprising departure or health crisis (or worse) at some point; companies that do not identify candidates capable of taking on senior roles will have to scramble. Crossing your fingers that departures will only happen when things go smoothly is not a sound strategy.

Consider the financial, operational, and emotional impacts of these scenarios:

• Another company lures away your head of sales. Unless someone competent steps in immediately to manage negotiations with new potential customers, the momentum will likely fade, and those customers will probably look elsewhere.

• You find out that an individual who manages critical day-to-day operations in your company plans to set up her own competing business. As she has access to sensitive information, you terminate her immediately.

• You run a successful small business and do not plan to retire for at least 10 years. You have discussed having one of your two adult children take over someday, but those conversations have been non-committal. Suddenly, you get injured and must step back from work. You have a good chance of fully recovering, but “someday” feels much closer than it used to.  
  

Leadership gaps can arise suddenly, disrupting operations, damaging client relationships, and leaving employees feeling unsettled. Succession planning sends positive signals about a business's continuity, which matters to customers/clients and employees.

Succession Planning Is Part of Business Planning 

It’s human nature to be rattled when someone in an important position leaves, voluntarily or not. Some employees take it as a sign that the ship has sprung a leak. Succession planning provides confidence in the stability and continuity of the business. 

When a company's owner is approaching a “typical” retirement age but has not discussed what that will mean for the business, key team members may look for other jobs to escape the uncertainty. This can damage the company’s performance, which is particularly bad for owners whose exit strategy was to sell the business at an attractive valuation. 

Think of succession planning as risk management, just as you address supply chain or cybersecurity risks. Succession planning is about protecting value. Well-structured succession plans protect the financial and reputational value a business creates as it grows.

Common Mistakes in Business Succession Planning

1. Waiting Too Long to Start

When we are uncomfortable confronting an issue, we tend to procrastinate. Of course, that doesn’t make the issue disappear; it almost guarantees a crisis. When an unexpected departure occurs (as it inevitably will), you must scramble to address it. The result is usually sub-optimal.

You never know when you might have to invoke a succession plan. When UnitedHealthcare’s CEO, Brian Thompson, was killed in December 2024, the company quickly named Tim Noel, a company veteran, the new CEO. Thompson's murder highlighted the importance of having succession plans in place. UHC’s stock price, which initially fell after the event, stabilized after the appointment of Noel. 

2. Ignoring How Succession Plans Can Conflict with Personal Financial Goals 

Business owners may not be aware that supporting the business's financial health can conflict with their personal financial security. An owner might limit contributions to retirement savings today, anticipating that proceeds from selling the company in the future will satisfy that need. When the time comes, the company may not attract a buyer at a price that meets those expectations, leaving the owner financially vulnerable.

Certain succession strategies can trigger significant tax liabilities, such as selling the business to a family member at a price far below its actual value or gifting it outright. This can significantly cut into the owner’s financial resources in retirement. A better approach is to coordinate succession planning with personal wealth transfer strategies years in advance of when you think you might be ready.

3. Overlooking Internal Candidates and Disregarding Stakeholders

Bringing in a fresh perspective when replacing a key team member can make a lot of sense. Still, consider the possibility that a great candidate with new ideas is already at the company. Also, if your employees see that you favor outside candidates as a rule, it sends a message that senior-level opportunities are limited. You run the risk of losing valued employees. Ask for input on succession plans from a range of team members who may have insights that you do not have about who might be most effective in key roles. 

4. Ignoring the Importance of Documenting Decisions

Handling succession planning through informal conversations invites problems. Some will view the decisions as commitments; others may see them as informal and subject to revision via other discussions. This will cause confusion when a key position opens. It is much better to hold a meeting specifically to discuss succession planning with various stakeholders whose opinions you value. Be methodical, document the decisions, and revisit them regularly (at least annually).

5. Downplaying Emotional Attachments and Family Dynamics

Family businesses are especially vulnerable to succession planning conflicts. If you missed HBO’s award-winning series “Succession,” the plot—reportedly inspired by media mogul Rupert Murdoch—focused on which of the patriarch’s four adult (using that term loosely) children would lead the family empire when he stepped aside. Without spoiling the details or the ending, let’s just say things did not go well for the family members or the business.

We’re all human, even successful business owners! When family is involved, emotions can cloud decision-making and damage outcomes. Consider that only 30% of family businesses survive the transition from first to second generation ownership. It’s a good idea to seek expert input to help family members communicate and address conflicts constructively.

6. Neglecting to Make a Contingency Plan

Having a succession plan that covers who will step into key roles in the business will pay off, but it won’t always work out as expected–for example, the successor you identified for a given role may have second thoughts when the time comes. Have a backup plan (“if Sue is not available to step in, we will have Joe act as interim head…”).

Financial Best Practices for a Smooth Transition

As noted above, whether you expect to sell your company to a third party or have a family member take over at some point, start the financial planning years in advance. That will give you flexibility and increase the likelihood of a successful outcome. Make sure you: 

• Understand how your business would be valued: Know which valuation metrics are typically used in your industry. This will help you realistically estimate what your business might be worth.

• Keep robust accounting records, prepared under Generally Accepted Accounting Principles (GAAP): If you plan to sell the company at some point, potential acquirers will expect this. Accounting that meets the GAAP standards takes time, so don’t leave it to pull together in a few days.

• Explore internal vs. external succession options: Do you want to sell or transfer the business to a family or a partner, or sell to an external buyer? Consider tax strategies, the transition (do you want to walk away or stay involved in some capacity?), and more.

• Build a strong advisory team: Legal, financial, and tax advisors can help structure a sound strategy for a smooth, financially optimal transition.

• Include personal tax and estate planning: Integrate your financial strategies into your business succession plan.
  

Overlooked Aspects of Succession Planning

In addition to the common mistakes and best practices discussed above, keep in mind these three things that can make or break this process: 

• Communicate: Open, honest discussions can prevent misunderstandings. Don't keep it a secret when you identify the employee who would step into a key role if needed. Tell the individual who holds the position now and the potential successor, making it clear that this is part of business continuity planning. Encourage mentoring between them. 

• Uphold the company’s culture and values: When evaluating potential successors, go beyond their objective track record to consider whether they will uphold the company’s culture.

• Provide post-transition support: When someone steps into a key position, provide guidance regarding the new responsibilities. Without it, the person might want to make big changes right away to show authority and put his/her stamp on things. Or the successor may suffer from “analysis paralysis.” Guidance and support are needed here.
  

Final Thoughts and Getting Started

If you take away just one thing from this discussion, it should be that business succession planning is essential, not optional. Other key takeaways:

Start early and review regularly: Make business succession planning an ongoing part of your company’s strategic planning process.

Involve key stakeholders: Engage family, partners, employees, and advisors early in the process.

Educate yourself, and expect emotions to play a role: Anticipate both practical and emotional challenges. Seek input from experts when needed.

The earlier you start your succession planning, the more options you’ll have when it matters most.

We invite you to take a moment to reflect on the state of your succession planning. If you have addressed all the issues we raised here, congratulations! If you are still early in the process or have not yet taken the first step, Gold Medal Waters can provide unbiased, supportive input to help you move forward. Contact us for a no-obligation conversation.

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