Succession Planning for Small Business Owners

Katie Fleming

Katie Fleming

Co-founder and COO of Owner Actions

A person in a chef's uniform looks into the distance, as if thinking through the succession plan of a business.

Owners who are the lifeline of their companies often have all the knowledge and connections their businesses need to thrive. But too often, their businesses fall apart when they retire, die, or become incapacitated.

One of the best ways to avoid this problem is to form a succession plan for your business. In this article, we’ll guide you through the steps, and we’ll help you find an attorney who can set your plans in motion.

Important note: This article should not be construed as legal advice. Speak with an attorney who can help you navigate your succession and prepare legal documents that suit your specific circumstances and goals.

 

What is a business succession plan?

A business succession plan is a roadmap of what should happen if can't operate your business because of death, disability, incapacity, or retirement. Key elements of this plan often include:

  • Emergency plan procedures for essential operating tasks
  • The naming of successors who will manage your business after a specific triggering event, such as death or incapacity, or an advisement to liquidate and sell the business
  • Instructions on how your personal retirement plan should be distributed
  • A description of how your estate should be managed
  • Additional elements that address the specific needs of your business

 

Should I create a plan if my intent is to close the business?

Yes. Your succession plan will help your executor, estate trustee, or others work through the steps of closing your business. With a succession plan in place, you can provide your beneficiaries peace of mind that your business will be formally and correctly liquidated and that the proceeds will be distributed how you intend.

 

How do I name a successor?

Many owners already know who they want to run their business when they pass or can no longer operate the business. If this isn't the case for you, try this exercise.

First, think about who you’d want to run your business after your death, disability, or retirement. If you have a family, you might choose a spouse or one or more of your children. Or, instead, you might consider a key employee who has the knowledge and skillsets required to run the business. You can learn more about this option here:

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Next, have a conversation with the person or people you’ve selected. Ask if they’ll be willing to step into that role. If they are, start developing a procedure guide, a key employee retention plan, and training materials that will help them navigate every essential part of your business.

Once you’ve identified a willing successor, work with your attorney to ensure that the rights to own and run the business are passed to that person or group of people. An attorney is essential for this task. Here's why. The process of transferring your interest to a named successor depends on how your business is structured. Your attorney can help you follow the correct legal procedures.

Want to learn more about working with a business attorney? Check out this resource:

Be sure that your attorney helps you specify what should happen with your company if the successor leaves the business or declines to take ownership of it. You may want to include steps for liquidating the business or naming an alternate successor.

What should I include in my business’s emergency plan?

If you were to die suddenly or become incapacitated, your family, partner(s), and/or employees would need a clear emergency plan for your business. Your emergency plan should include all the procedures that are necessary for running the business in the short term. It should also provide contact information for key personnel, including your successor, accountant, attorney, and other pros who can help with the business and other key matters.

 

Can I create a succession plan on my own?

Some owners have success with online templates. But often, these templates fail to address the complex issues involved in estate planning, so they're best for simple, straightforward succession plans. An attorney is often a best choice. This pro can help you work through the planning that’s needed to help your business to thrive through any future transition.

 

How can I connect with an attorney who can help me with my plan?

We can help you find an attorney who is experienced in small business issues. Click the Connect button to get started:

 

What other steps can I take to secure the future of my business?

You're vital to your business, so you may want to look into some insurance policies that will help your company and your family if you become disabled or incapacitated. Popular choices include:

  • Business overhead insurance
  • Business interruption insurance
  • Short-term disability insurance
  • Long-term disability insurance
  • Business income insurance
  • Data breach insurance
  • Buy-out insurance

 

While you're taking this step, you might also want to review your coverage and policy limits for your business insurance policies. Pay special attention to your property damage, general liability, workers’ compensation, and commercial auto coverages.

This resource can help you work through some important considerations:

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It’s a great practice to review your insurance policies on a regular basis. By doing so, you can ensure your company is protected against any catastrophe.

Insurance is one expense where it makes sense to obtain multiple quotes. Here are a few popular providers that can provide you with fast, free quotes:

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Would you like more support? Log into your owner’s portal for articles and advice that can help you grow and manage your business and plan for your exit.

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