Have you ever heard the phrase, “The only thing predictable about life is its unpredictability?” This is an uncomfortable reality we live in and, for the most part, manage to ignore as we push through daily life. However, anticipating the future is part of being a successful business owner. Whether you’re a small family business or managing a company with hundreds of employees, succession planning is one way to manage the transition of your company, whether that transition is planned or not.

What Is Succession Planning?

Succession planning is like creating a personal will but with your business in mind. It is a legal business plan that designates who will lead the company when you retire or in the case of death or another unexpected event. Succession planning at large companies involves the board of directors plus the CEO and other key leaders. At smaller companies, it likely involves only the CEO/owner and a few key leaders. An attorney can also be helpful in drafting a succession plan.

What Does a Succession Plan Include?

A succession plan includes:

• A Designated Successor – This could be a co-owner, a partner, another leader within the organization, or even the use of an outside organization to identify a possible successor or place the company into employee ownership.
• Documented Skills and Knowledge – Whether your successor is internal to the company, a family heir, or an outside owner, they will need information on how the company runs and the responsibilities that fall to the successor/new owner. Create a document with the training and skills the successor needs. This will also identify training you may wish to include for upper-level employees who could be potential successors or who will be responsible for training the successor.
• A Succession Timeline – In the perfect scenario, this timeline allows your successor a period of time to train with you, learn new skills, and understand the business. The timeline can depend upon when you would like to retire or at least step back from day-to-day operations, and the length could be a few months to a year or even three to five years.
• Tax Planning  – The successor should know the company’s valuation to establish a fair price for purchase, or simply for tax planning purposes in case of family succession. Tax planning also prepares the company for any capital gains or estate taxes and covers successor liability for any unpaid taxes.
• The Succession Agreement – This document states the Buy-Sell agreement and includes details like financing, what initiates the sale of the company (retirement, death, a specified time period), and ensures it is legally compliant.
• An Emergency Plan – This document details what to do in the case of unexpected death or other circumstances, which means the original plan or timeline can’t be followed. An emergency plan can name alternate successors, temporary leaders, or an updated timeline.

Other Considerations in Succession Planning

Succession planning isn’t just about achieving peace of mind, knowing the company is taken care of in the future. It’s also about laying out the steps needed to train employees or other future successors so that day doesn’t catch anyone by surprise. With a team involved, succession is an easier process.

• Consider using an attorney to help your company create a succession plan or to review it for legal compliance once it’s written. This could be a corporate lawyer, estate and wealth management lawyer, or a small business lawyer.
• Consult with a tax attorney or financial professional on the sales plan and potential taxes during succession so no one is caught off guard.
• Consider announcing the succession plan to your employees so they understand the plan, who the successor is, or the potential to rise in leadership and take on that role. 
• If you’re unsure who to name as a successor, some companies, like TeamShares, specialize in assisting businesses with succession and converting companies to an Employee Stock Ownership Plan (ESOP).

While planning for the future may seem like an added task, that planning adds a measure of predictability to the future and will extend the life of your company. 

Further resources on Succession Planning:

This Succession Planning Toolkit from the University of Washington helps you think through key roles and goals for succession. 

The University of Minnesota has a series of 2 to 4 minute videos about succession planning.

LinkedIn Learning offers a course on Succession Planning. 

Contact your local Small Business Administration or your local Chamber of Commerce to ask for resources or recommendations about succession planning with local experts.