What to Include in a Succession Plan

Why Succession Planning Matters

Succession planning is one of the most important aspects of exit planning for small business owners. Without a clear plan, the transfer of leadership can create confusion, disrupt operations, and reduce the value of your business. A well-designed plan ensures continuity, protects employees, and preserves the wealth you’ve built over time.

Step-by-Step Instructions

1. Identify Key Roles

• Pinpoint critical positions that keep your business running (owner, CFO, lead sales manager, etc.).

• These roles must have documented responsibilities so successors understand what’s at stake.

  
  

2. Select Successors

• Evaluate internal candidates (family members, employees) or external options (buyers, partners).

• Consider skills, experience, and alignment with your company’s culture and long-term goals.

  
  

3. Define Key Elements of the Plan

Include:

• Transition timeline (phased vs. immediate handover)

• Training and mentorship programs

• Legal documents (buy-sell agreements, shareholder agreements)

• Financial considerations (valuation, funding, tax planning)

• Communication strategy (informing employees, clients, and stakeholders)

4. Create a Training and Development Program

• Prepare successors with on-the-job training, shadowing, and leadership opportunities.

• Establish checkpoints to assess readiness.

  
  

5. Protect the Business Financially

• Secure life insurance, key person insurance, or contingency reserves.

• Ensure your business valuation is up to date for a fair transition.

  
  

6. Document and Review the Plan

• Write down your succession planning framework in detail.

• Schedule an annual review to update names, roles, and financials.

  
  

Real-World Examples

• Family-owned restaurant: The owner gradually transitions leadership to a daughter over three years, providing mentorship and ensuring customer trust remains intact.

• Professional services firm: A CPA practice uses a buy-sell agreement to transfer ownership to junior partners, guaranteeing clients experience no disruption.

  
  

Common Mistakes to Avoid

• Procrastination: Waiting until retirement or a health crisis forces a rushed plan.

• Ignoring financial planning: Overlooking tax consequences or not updating valuations.

• Failing to communicate: Keeping employees and clients in the dark, leading to uncertainty.

• Choosing the wrong successor: Selecting based on convenience (family ties) rather than capability.

  
  

Best Practices for Succession Planning

• Start early—ideally 5–10 years before you plan to exit.

• Involve trusted advisors (legal, tax, and financial).

• Keep the plan flexible and regularly updated.

• Prioritize transparency with stakeholders.

• Align the plan with your broader exit planning strategy.

  
  

Bottom line: Succession planning protects your legacy, ensures business continuity, and maximizes value during transition. By focusing on the key elements, preparing successors, and avoiding common pitfalls, you can exit confidently and set up the next generation of leadership for success.