Succession Planning 101

While some days it may seem impossible, hopefully you won’t actually be working forever. For anyone that has built a successful business the question arises of what happens to that business when they are ready to move on to a new adventure, whether that is retirement or an alternate business opportunity.

No matter the scenario, being prepared to keep your business thriving is an important part of your legacy. Your clients and employees deserve it, and since you’ve built a shining reputation over the years, upholding that with a solid succession plan is key.

Drivers for a Succession Plan

Having a succession plan in place can help keep stress low during an expected or unexpected time of transition. It can also keep your company from losing money and help your family and/or business partners know the right steps to take.

A succession plan can benefit your business if you have:

  • Regular, repeat clients and ongoing contracts or partnerships.
    • How will your clients, vendors, and partner companies be affected when you’re no longer at the helm?
  • Multiple employees.
    • Who will manage operations, your team, make sure payroll is running smoothly, and help lead your company should you not be there?
  • Complex processes or operations.
    • A succession plan can detail the steps those running your business need to take daily or on a regular basis to keep the business strong.

Succession Plan Options

There are a few different ways to plan on transferring your business as you leave.

  1. Transfer the business to an heir, a family member poised to take over operations and leadership.
  2. Selling the business to your partner(s).
  3. Selling the business to a key employee who does not currently have a stake in the business.
  4. Selling the business to an outside buyer


If transferring the business to an heir, you can plan to transfer ownership through estate planning. As a part of that, the different taxes of the family heir transition should be considered, including income, gift, generation-skipping, and estate taxes.

As part of planning in this scenario, you will also have to outline how other heirs not inheriting the business will be compensated. You can consider buy-sell agreements, also known as a buyout agreement, with details for how those heirs that are not a part of the business can sell their shares to the heir who is.

In a family leadership transition, if there are several heirs involved, it’s best to include specific details on who will take over which responsibilities and how the leadership will be structured in the future. This can keep communication clear and open.


If you have business co-founders or partners, a buy-sell agreement should be established at the formation of the business to outline how all parties can exit the business or pass along their interest in it. These agreements can allow for partners to purchase your shares.

This may mean that your partner needs to hold funds available to be able to make the purchase, should the need arise. Shares could also be purchased over time, bit by bit. Often the agreement specifies an initial significant down payment that is then followed with regular payments of a specified payment term.

Agreements can be structured in a variety of ways and are sometimes implemented in ways that allow for lowering estate taxes in intergenerational businesses where an heir will remain active in the business.

For the case of an unexpected transition, a buy-sell agreement can outline that the remaining business owners agree to purchase the shares of the business from any family members who inherit shares. The family members receive fair compensation, and the co-owners also maintain control of the business. To ensure this transaction goes smoothly, many businesses purchase life insurance for the owner or co-owners, so in the event of an unexpected death, the company can use the funds to buy out the shares from the owner’s family.


If you don’t have a co-owner, you may have specific employees who might be interested in continuing your business’s legacy. Take a look at the employees you have with experience, appropriate aptitude or expertise to run the business, and are respected by your staff and customers.

Selling the business to a key employee also should include a buy-sell agreement, with a pre-set date of purchase (your retirement), or outlining other circumstances, such as a disability, that would mean the employee would take over leadership fully.

This can be a challenging option, as not every great employee may have the wherewithal to financially purchase the business. A seller-financed arrangement may help alleviate this situation, which involves the purchasing employee paying for the business purchase over time. This approach should be approached cautiously and with professional support and guidance to manage all possible risk situations.


Depending on the type of business you run, there may be other similar businesses in the region that may be interested in purchasing your company. To prepare for this, ensuring your business is sale-ready can make a big impact. Make sure your general or operations manager is well trained, your procedures are well documented, and regulations are followed. Having your finances reviewed and cleaned up is helpful. Demonstrating the stability of the business will put your best foot forward for a sale.

This approach may mean changes to the business after the sale. Maybe the staff or customer base changes, or the direction of the company morphs. While selling to a partner or leaving your business to a family member may mean you retain some involvement, selling your business outright generally means the end of your influence once the sale is completed.

How to Create a Succession Plan

Now that you’ve considered and selected the best option for succession, you’ll need to take the right steps to create your plan. The five basic steps to creating a succession plan are:

  • Selecting your successor (unless looking for a third-party purchase). If you have more than one option, such as more than one possible heir or key employee, compare them side-by-side and make serious considerations about their capabilities and interests before you move forward.
  • Lay out your timeline of when you think succession should take place, even if it’s years from now. Include plans for what should happen if there are unexpected events to help things to transition smoothly if you are unable to personally oversee it.
  • Ensure your operating procedures are all documented, as well as your employee handbook and any recurring processes.
  • Use an outside company to provide a business valuation and ensure it is updated regularly. A business’s value is calculated based on a combination of assets, equipment, inventory, real property and intellectual property, so changes in any of these areas may change the landscape.
  • Detail the funding plan for any purchases of shares or for the full business.

Once you have a plan laid out, be sure to look at it regularly and adjust as needed. Continue to prioritize mentoring any future leaders, getting used to delegating so your business can run without you, and deciding what role you’ll plan after the transition.

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