Small Business Succession Planning: Key Considerations

Small business succession planning is crucial to ensure that your life’s work continues to thrive once you’ve left the helm. 

Yet, according to a recent article, an estimated 75-80% of small businesses lack a roadmap for what happens after the current owner is ready to move to the next phase. 

4 Key Considerations for Small Business Succession Planning

The old saying goes, “Failing to plan is planning to fail,” and the sentiment is strikingly accurate concerning transition planning. 

Like purchasing insurance or investing in your retirement fund, small business succession planning is a safety net that ensures comfort and stability for your and your family’s future. 

And the sooner you get started, the more likely you are to create a comprehensive product that will give your business its best chances of survival once you’ve left, whether your transition is expected or not. 

But where to start? What are the most critical steps facing business owners?

Let’s look at the 4 most essential steps you should take when starting your small business succession plan:

Work with a Team

If you’re like most business owners, your success is partially due to the help of a trusted team of advisors, employees, mentors, friends, and loved ones you turn to in times of need. These same people– the ones most intimately familiar with the ins and outs of your business– should be involved in the succession discussion. 

While deciding which direction your transition goes is ultimately up to you, their perspectives and opinions can help you make informed decisions that benefit the business and those left behind to take care of it. 

Set a Goal and a Backup Goal

In the ideal situation, you would transition from your business to oceanfront property on a tropical beach to laze away your retirement, but unfortunately, that’s not always the case. 

Create two transition pathways: an ideal option and an “unexpected” option, in the event of your sudden death or illness that leaves you unable to function within your business. Then, if something goes wrong, your family and partners still have a plan to honor your succession wishes. 

Make a List of Key Players, Along with Role Descriptions and Ideal Successors

This part can be particularly tough because choosing a new owner and other successors to fill in roles as others transition out requires you to have an in-depth knowledge of the skills, personal preferences, and experience your team brings to the table. 

Make a list of roles that are crucial to running your business and attach the names of your preferred candidate to those positions. Then, for those positions where you don’t necessarily have a specific person in mind, make a “profile” of the person you’d like to see eventually take up the reins. 

As your transition team fills in these gaps in your absence, they can use your recommendations to build a team that will honor the business and practices you’ve created. 

Conduct a Business Valuation

You have to know how much your business is worth if you want to make informed decisions about small business succession planning.

In some instances, it will help you list your business for an appropriate amount on the market, but even if you don’t plan to sell, it can help you attract investors, encourage current stakeholders that your transition will be successful, and create a baseline data point for your heir to grow from. 

Wrap up

When you first begin the process of planning for the future of your business, it can provoke many emotions. 

You may feel fearful or anxious about letting someone else take over, stressed about which heir to choose as your protege, or unsure whether you’ll be able to come up with a viable strategy before the time comes to transition. 

For now, the most important thing you can do is take the first step in the right direction. When you’re ready, consider working with a business transition coach. Catalyst Group ECR will empower you with the tools, resources, and skills you need to prepare your business for a bright future.