10 Tips and Tricks for Small Business Succession Planning


As a small business owner, you know what it’s like to wear many hats. The buck stops by you. Depending on your personality and drive you may be a great delegator or perhaps you need to work on getting the proper support to keep from being overwhelmed. The name of the game is to keep as many balls in the air or find the right people that can carry those “balls,” aka responsibilities to meet your vision and goals. Does the work ever end? (It always seems like something needs to be worked on or taken care of! ) Do you find yourself taking work home with you? These are all the natural challenges and struggles of a small business owner.


Hopefully you have built or are building something you can be proud of. A business that can allow you to provide for you and your family. The business may afford you the opportunity to leave a legacy and even perhaps leave your mark in this world by making a contribution to the community and society at large.


Now, not to get you down, but what if you don’t come home one night? Mayb a car accident or a sudden medical trauma? There are all kinds of reasons that these tragedies take place. Often in these cases, the details may be totally out of your control. The reality is that they really do happen and usually people don’t plan for such things to happen, either because they are too busy building and supporting the business, or because we feel invincible, or perhaps it is too difficult to think about!


Although this “curveball” is certainly not  welcomed it needs to be managed and the impact of the events dealt with accordingly. How will the company run tomorrow? Who will facilitate the weekly board meeting? How will the business continue to function with the tools to prosper without your presence? Who will address your family and their needs? Is there an emergency fund? How will they be taken care of ? How will the mortgage, car payment, and other bills get paid?


Even without such a dramatic plot twist, there will come a time when you’ll need to pass the baton either willingly or unwillingly. It’s a good idea to begin planning for that sooner rather than later if for no other reason to give you the ability to make some basic decisions and leave directives to members of your small business team and or family. In the estate planning world some leave a set of directives or guidance via a “letter of last instructions” in the special needs planning world it’s called a “letter of intent”.  Such a letter includes where to find account passwords, contacts, contracts, secret sauce and other forms of guidance for when you’re no longer here to hold their hands to provide this support.



As a small business owner, if you've haven’t considered the different options that you have for the future of your business, now may be a good time to block out some time or at the very least get the topic on a family meeting or business planning agenda.


Deciding on a succession planning strategy may not be a walk in the park, as there are many options you can choose from, and it can be difficult to discuss. Although it's certain that you're busy with the day-to-day operations of your small business, and you probably don't have much time to spare for estate planning, you should try to make it a priority. (In the business world this is referred to as “getting ahead” of a problem or matter.) Having a succession plan in place will hopefully give you some peace of mind that your future, the future of your family, and the future of your business is secured by a plan.

When going through the planning process, it can be beneficial for you to speak with a financial professional. They can help you decide on a plan of action. You should also be aware of the legalities of your plan and speak with an attorney that specializes in working with small business owners. Working with an attorney will allow you to prepare the necessary paperwork to ensure that everything is carried out as you want it to be, aka “making it real”. In the unlikely event that you aren't available to put your future plans into motion, you'll want to feel confident that your wishes will be carried out as desired.

Why is Estate Planning Important?(1)

Yes, when dealing with your small business, it's essential to have plans in place in case of an unexpected death or illness that necessitates the immediate takeover by someone else when you aren't available.(there a matter of responsibility to yourself, your family, your employees/co-workers and the consumers/clients that count on your business.)


But estate planning isn't only for just emergencies. You can begin planning for the future of your business now, this will help to ensure that the transition is easier when you decide to retire and pass the business on to someone else or sell it. Estate planning, which can also be called succession planning, can involve many different aspects. Some small business owners may have a business partner that will buy out the other business shares upon your retirement. You may also be working with a family member who wishes to take over the business once you step away.


If you know that retirement is upon you, it's important to begin planning even 2 years in advance if possible. This gives you plenty of time to work with professionals to hammer out all the details and also to get everything in order including the legal “stuff”.

The Benefits of Estate Planning (1)

Estate planning can benefit your business, as well as your personal interests, in a number of ways:

  • With a plan in place, you can be confident that your business interests will be cared for in case something happens to you.
  • Whether you have co-owners that would be able to take over and buy your share, or you have a family member who wants to take your place, having this written out in legal terms will give you the knowledge that your wishes will be followed.
  • It also helps to prevent issues in the business that can often occur when there is a dispute over ownership if the owner doesn't have a succession plan in place.
  • Planning ahead can also reduce the tax burden on yourself and those you wish to take over your business.

Whether you're nearing retirement or simply deciding on a plan of action in case of an emergency, estate planning will allow you to have your goals in writing so there are no disputes or questions.

Work With Professionals (3)

When coming up with your plan, it's important to choose a qualified adviser that can help you figure out all the details. You'll also need to consult with a lawyer so that you can have everything written up in case of an emergency. Taking care of the legalities ahead of time will prevent the issues that can arise in the event that something happens to an owner and or a co-owners, or family members, have different ideas of how the small business should be managed. When it comes to finding a lawyer, it’s important to find one experienced in working with small business owners and their succession plans. There are also many financial advisers who specifically work with those in small business to help them make a plan for the future. Not all financial advisers have experience with succession planning so be sure to ask the right questions before choosing an adviser. For example when our wealth management clients are involved with succession planning, we make a point to get other family members involved or at the very least to have them informed that there is such a plan and if possible to share some or all of the directives which will go into effect. This offers the family a sense of security that someone will be there to guide them and that the steps taken in the future will not be a surprise. .

Develop Your Vision (3)

Before you come up with a plan, you need to have an idea of where you would like to see your business go in the future. Having a plan for your business will help you better understand the best strategy for succession once you step away from the business. You should visualize where you would like to see your business in 5, 10, and even 20 years. Once you have an idea of where you would like your business to go, you can begin coming up with a plan for achieving those goals.DON’T FORGET TO PUT THIS PLAN TO PAPER! This will involve some idealistic planning as nothing goes exactly as planned, but at the very least it will be a guideline for the future for yourself and those who may take over after you. The most common ways to leave your business are: family takeover, a buyout strategy, or a phased exit.

Passing the Business to Family (2)

The family-owned business is the backbone of the American economy. Family businesses have gained popularity in recent years and will likely continue to do so as more people prefer to shop or work with small, local businesses to help support local economies. There are many benefits to choosing the path of family business succession. One of the main financial benefits of transferring your business assets to your children is the tax benefit. You can have a source of income called a grantor retained annuity trust, or GRAT, that will prevent your assets from being subjected to huge tax increases as the business grows and becomes more successful. Another benefit of passing the business on to your family members is that you have the peace of mind that you were able to choose someone close to you to build on what you've already accomplished.This is a way of leaving your mark and legacy to the future generations. Working with a family member to help them learn the business to take over in the future gives you the opportunity to train them and teach them what you know so they are well prepared.

The Buyout Strategy (2)

If you have business partners you can set up a buy-sell agreement that gives them the option to buy your shares. This can be set up for emergencies in case of your unexpected death, or inability to continue running the business. It can also be used as an exit strategy so that your co-owners can buy your portion of the business when you retire. Some small business owners also have employees who have a long-term interest in the business and the desire to buy you out upon your retirement. This can be a great option as these employees have experience and knowledge that a newcomer wouldn't have. A buyout strategy can often be ideal for business owners who are concerned about passing on the business to an inexperienced new owner. This option allows the continuation of business with limited disruption. (assuming the individuals stepping in are qualified and able to take on a role of going from an employee to owner or silent partner to managing owner.)

Phased Exit (2)

Some owners hesitate to proceed with a succession plan because it feels like you have to give up complete control all at once. This isn't the case with a phased exit type of succession. If you know when you'd like to retire, you can come up with a plan that allows you to gradually hand control over to your successor. This time frame can be whatever you're comfortable with. The time frame may be months if you have a successor who's prepared to take over, or may take a few years if you're just beginning to train your successor in the ways of your business. Some owners may decide to transfer partial ownership of the business while still maintaining control in certain areas. This works well for those who still want a part in the business and would like the steady income that comes with partial ownership. If you choose this route, be sure that your successor is on board with the transition and will be comfortable with your continued involvement. There is nothing more disjointed or toxic than having too many people calling the shots. (Sometimes it’s ego/pride at play, but whatever it is  make sure the governance and organizational chart should be clear.)

Common Issues with Succession Planning (3)

Many small business owners make some of the same mistakes during succession planning. But if you're aware of these issues they can be avoided. One of the most common problems with succession planning is waiting too long. (It’s a good idea to begin by thinking about your business and the day to day running of that business, while at the same time, asking yourself what happens if I am not here tomorrow? Or away for a month? How will the business manage? (It’s these types of questions that help to shape a plan. – if the answer is …..nothing can function, then something is potentially very wrong for the business and the clients or consumers that rely on your goods or service.) You never know when an emergency may happen and you'll need a plan in place. Another common problem is resorting to trying to sell the business rather than arranging for a detailed succession plan. Selling your business may be the best option for you once you're ready to leave, but it's a mistake to assume that it will be the easy way out. Selling requires that you find the right buyer at the right time and that's not always possible. Be sure to plan far ahead if your succession plan includes selling. (Again, this might not be the best answer for your employees, customers or the business in general.)

Setting Up Your Successor for Greatness (3)(4)

If you plan on choosing a successor to take over your business for you, it's important to put time and thought into who you select. Choosing your successor isn't as simple as just picking the person you want to run your business. You have to consider all the factors involved in the day-to-day running of the business, as well as the long term goals you have. It's important to carefully consider who you think will be successful. Consider your candidates' goals, ambition, business smarts, and dedication. (Some people bring in consultants -even though it may be expensive- because of their objectivity and experience in management change.) (Also some business owners have their applicants take personality tests to help determine their temperament!) You are the person who understands the business best and you know what it takes to be successful. You may need to work with your successor for a significant amount of time in a sort of apprenticeship to help them learn about how your small business works. It can be helpful to have them learn everything, from the menial everyday tasks to the marketing, investing, and financial work that goes into keeping your business running. It's also important to be prepared for change. (One of the ways to prepare the successor for the business culture may entail having the person hired on a trial basis or in a management role like chief operating officer. Then after 6 months or a year of proven success, owners may begin handing the reins over to the new guy. Someone like Michael Dell tried to step away from the Dell Computer company but quickly realized the business was suffering- which is why he came back to being Dell’s CEO.)   The person you choose may have different ideas on how your business should function. Once you turn over control, realize that the responsibility is no longer yours and enjoy your freedom.

The Issue With More than One Successor (5)

If you have more than one child who is interested in the business, you have to make tough decisions on who gets what share and who takes on the responsibilities. When making your succession plan, it's essential to consider what issues may arise once the plan is put into action, especially in case of an emergency where you may not be available to deal with problems. There are many times when an owner has one successor who is more invested in the business. You may have a child that has took an interest in your business from early on and has shown good leadership and business sense. Even if you have other children who may be expecting a partial ownership, you have to do what is best for the future of the small business you created. It's important to separate this business relationship from your personal relationship with your children. It would make the most sense business-wise to leave the majority of your business interests to the child who has shown promise in running the and maintaining the business. You can leave partial shares to your other children depending on what you think is fair. (Whatever approach you take, I think it is imperative to share your ideas and plans with the entire family unit so everyone knows your plan, intention and are able to hear directly “from the horse's mouth”. This will alleviate alot of the pressure and misunderstandings. ) (Another point to consider is there could be a difference between the management of the family business and benefiting from the proceeds/profits. If for example there are four children.  Consider the two bucket approach. One is the management of the company, each child interested can get paid to work for the company and the second bucket can be the ownership established as a trust or a separate entity that shares the profits of the company evening. This way the ones working for the business also get a salary while everyone of the children gets a profit distribution given to the owners.)

Important Items to Remember (6)

When coming up with your estate or succession plan, there are a few basics that should always be covered. First and foremost you should work with your lawyer to draw up your will so that all your assets can be transferred as desired. Include pertinent business information that can be passed on to your successor. Some states don't allow for certain types of personal information to be given to heirs so you need to be sure that things like email accounts, bank account information, business-related social networking, and all the corresponding passwords are available to those who will be taking over when you're gone. You can also choose to set up a trust that will provide your heirs with their inheritance quicker than the will. Creating a power of attorney will give another responsible party of your choosing the ability to make important business decisions in case of an illness or injury where you are incapacitated. Be sure your succession plan includes all the important financial documents about debts and liabilities so those can be taken care of as needed.

As a small business owner, you have the responsibility to yourself and your successors to create a plan for your business after you're gone.(Not to take this too off topic, but I’ve met more than one family business owner that insisted the entire family not all travel together for succession purpose in case of plane crash! – they would split everyone up in a number of flights!) Whether it is retirement or an unexpected death, all loose ends should be tied up in a timely manner so you don't have to worry about legal troubles or disputes. Be sure to carefully consider who you want to take over your business. It may be a family member, a co-owner, or a newcomer who wants to purchase your small business. Work with an adviser and legal counsel to ensure that everything is drawn up with no loopholes. (At my firm,  we like to work together/collaborate with the tax advisor and lawyers to make sure that plan has been designed with full consideration of the owners overall financial, tax and legal needs) Once you have your plan in place, you can have peace of mind that your wishes will be carried out and your business will continue its success into the future.

Resources Used

Benefits of Succession Planning

  1. https://www.huffingtonpost.com/kc-agu/5-things-estate-planning-_b_9580698.html

Common Exit Strategies

  1. https://www.bdc.ca/en/articles-tools/change-ownership/plan-succession/pages/family-succession-4-common-exit-strategies.aspx

Mistakes to Avoid

  1. http://www.wealthmanagement.com/family-business/myths-and-realities-succession-planning-small-businesses

Ensuring Success Once You're Gone

  1. http://ageconsearch.umn.edu/bitstream/186421/2/Cornell_AEM_eb9804.pdf
  2. https://www.forbes.com/sites/allbusiness/2013/08/28/5-steps-to-create-a-viable-succession-plan-for-your-family-business/#3fad87dc76f2
  3. http://time.com/money/3964517/small-business-estate-planning/