When a headstrong business owner avoids clear succession planning, the results can be chaos, infighting, and emotional landmines. Even if your business is not a global media empire, the challenges of passing the torch can be just as real—and just as risky!
Small business owners often pour years (if not decades) into building an entity that is resilient, profitable, and meaningful. But without a clear succession plan, even the most successful business can falter in transition. A thoughtful plan protects the value of what you’ve built, creates clarity for your team and family, and ensures your legacy continues in the way you envision.
In this post, we will help you identify the steps necessary to get started with your succession plan. Whether your goal is to retire, stay involved part-time, or simply plan for the unexpected, having a clear path forward is essential.
Step 1: Define Your Succession Plan Goals
Succession planning starts with a single question: What are your goals? Identify what you want at the end of the process. Every owner’s priorities are different, but generally, succession goals fall into two categories:
A. Who Will Take Over the Business?
There are several options for choosing your successor or buyer:
- Family Member: Transitioning your business to a family member, such as a child, sibling, or spouse continues the legacy. This often involves training and gradually transferring leadership.
- Key Employees or Internal Team: Selling your small business to long-trusted employees allows them to gradually step into the owner’s shoes.
- Known Third Party: This could be a peer within your industry or even a friendly competitor. It’s essential to find someone you know and trust to carry the torch.
- Highest Bidder: In this case, the goal is to sell for maximum value, often to an external buyer, investment firm, or strategic acquirer with no prior relationship. Consult with your company’s management team for help.
While each direction has different emotional, financial, and operational implications, identifying someone you know and trust is the easiest path. Ultimately, you have to be honest with yourself about what matters most—legacy, loyalty, or liquidity.
B. What Role (If Any) Will You Play After the Transition?
Not all owners want the same exit strategy. Some are ready to unplug completely, while others want to stay involved.
What is your preferred level of post-transition involvement?:
- Fully Retired: You step away entirely, with no ongoing role or financial ties.
- Remain Employed: You stay on as an employee or consultant for a defined period, perhaps to help stabilize the business or mentor the new owner.
- Limited Involvement: You support the transition part-time or behind the scenes—for example, by making introductions or advising the new leadership.
- Ongoing Ownership: You retain a financial stake in the company while reducing your active role, effectively becoming a passive owner or investor.
Each option affects everything from how the deal is structured to your personal time, taxes, and emotional fulfillment.
Step 2: Choose Your Exit Strategy Timeline
Are you hoping to transition within 12 months or five years from now? The earlier you start the succession planning process, the more options you’ll have. Giving yourself time allows for:
- Grooming successors (especially if internal)
- Improving the company’s value before sale
- Tax and estate planning
- Preparing your team and customers for the change
Succession planning is a long-term process. Don’t wait until the last minute or avoid the process all together.
Step 3: WOrk Through Your Succession Plan with the Right Team
Investopedia advises creating a detailed contingency plan with your chosen successors. This should outline each leader’s capabilities and the knowledge required to support smooth transitions across key roles. Consider developing alternate plans to account for emergencies or unforeseen personnel changes.
Work with advisors who can consult on the technical and legal aspects of the transition, such as a mergers and acquisitions lawyer, an accountant, an investment broker, or a business coach who specializes in your field. The right team of experts can help you maximize the value of your business and steer you away from disastrous decisions. For example, an accountant at Bernstein Financial Services can help you take advantage of tax incentives.
Don’t wait until you’re ready to leave. Start planning as soon as possible in order to give your future—and your business—the clarity it deserves.
Step 4: Conduct a Business Valuation and make sure your financial reports are accurate
Spend time reviewing and adjusting your financial statements to make sure that are accurate and fairly represent your financial position. Too often a deal gets lost in the due diligence process after a selling price has been determined because the financials reports have inconsistencies.
A business valuation can be helpful for developing a flexible and effective succession plan. Because the cost of a business valuation report can be expensive for small businesses, asking your tax advisors to provide practical methods to estimate the value of your business will give you a starting point.
Having a recent valuation on hand gives your business added credibility and shows you’re running a well-managed operation, whether you’re seeking financing, courting investors, or preparing for a future sale.
The process even gives you a realistic picture of how much your business could contribute to your retirement income.
Whether you’re transferring equity to a family member or selling your business to a colleague, you’ll want to ensure everyone is aligned on a fair value—especially if the business will be split among multiple parties. A valuation brings objectivity and helps avoid future disputes. It also supports proactive estate and tax planning that could save your heirs significant money later.
Done early and updated regularly, it helps you make informed decisions about succession, investment, and legacy planning.
Step 5: Evolve Your Corporate Culture
When you launched your business, you may have handled everything yourself, and stepping back to allow the business to function without your leadership may now feel uncomfortable. But allowing the business to flourish without your oversight is a critical part of the succession planning process.
Stepping back while still overseeing the business will allow you to identify areas that need improvement. Perhaps prospective principals need leadership training or new employees need to be hired and given time to settle into their roles. Maybe operation manuals need to be written or old processes need to be updated. Or, it could be that your team needs to coalesce through a company retreat.
It is important to have the right people in the right roles, with clearly defined job descriptions. Without this foundation, you risk confusion—or even a power struggle—after you step away.Investing in performance training helps ensure your team is equipped to lead with confidence and clarity in your absence.
Step 6: Re-Evaluate Your Plan Regularly
Succession planning is an ongoing process. Over time, circumstances may change: Key employees may move on, family members may decide not to take over the business, or your own vision for the future may evolve.
That’s why it’s essential to review your succession plan every year or so with your trusted advisors.
Succession Planning Frequently Asked Questions (FAQs):
Q: What is succession planning?
A: Succession planning is the process of preparing to transition your business to a new owner or leadership team, whether through retirement, sale, or internal promotion.
Q: What is the difference between succession planning and exit strategy?
A: Succession planning is about preparing the business for leadership transitions by identifying and developing internal candidates to take over key roles. Exit strategy, on the other hand, is a plan for the business owner’s departure from the company, whether through sale, transfer, or other means.
Q: How do I value my business for succession?
A: A certified business valuation expert can assess your company’s worth based on financials, market conditions, and future earnings potential.
Need help preparing your business for succession? Our experienced advisors can help you assess your options, plan your exit strategy, and make the transition smooth for everyone involved. Let’s talk about how to make your next chapter a successful one.