Small business tips

Understanding Small Business Succession Planning

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As a successful small business owner, you have poured tons of time, money, and commitment into your company. But there may come a day when you want to retire or focus on a new business venture, and what will happen to the business you’ve worked so hard to build?

In addition to giving you a sound exit strategy when you’re ready to make your next career move, a business succession plan can also address unexpected life circumstances, such as illness, disability, or death.

Read on for some business succession planning tips from the Oregon SBDC. If you need more help, our knowledgeable advisers are available and ready to assist; click here to connect with us.

What is Business Succession Planning?

Business succession planning is an action plan around the logistical and financial aspects of your business. This includes who will take over and fill the key roles and responsibilities when you retire or need to exit. While succession plans are most commonly associated with the owner’s retirement, they also support the sale of a business and other circumstances that can take place throughout your business’s life span.

If anything unexpected happens to you or a co-owner, including death or disability, having a succession plan in place provides peace of mind about the business you’ve worked so hard to build.

Why Create a Business Succession Plan?

Besides providing you peace of mind, a plan, and a goal to work toward, a business succession planning strategy ensures that there will be less disruption to your company’s operations, employee performance, and clients when you are no longer able to run the company or decide that you no longer want to run it yourself.

A good succession plan also addresses how your business would respond to unexpected events, including death, disability, divorce, or the decision to separate from partners; to whom the business’s ownership would be transferred; how you can maintain your lifestyle when you’re no longer working full time; and how your heirs would be provided for financially.

Your Business Needs a Succession Plan: Here Are the Basics

A business succession plan is put into writing to guide all participating parties through the change in ownership. It aims to benefit everyone involved, including departing small business owners, successors, employees, and the business itself.

Depending on the complexity of your succession and your business, you may develop the plan yourself or hire a professional to assist you through the succession planning process. Whichever method you choose, a well-crafted small business succession plan should include the following:

  • A succession timeline. This details the specific circumstances for when a succession would occur and, if applicable, the dates it would commence.
  • Potential successors. If the succession is not through a purchase of the business, you should choose three or more potential successor candidates, the order of consideration, and explain why they would make suitable successors based on their key positions, management roles, and skill sets.
  • Formalized standard operating procedures (SOPs). This includes the compilation of documents, procedures, employee handbooks, and training manuals.
  • Your business’s valuation. This should include the method for how the business was valued and should be updated on an ongoing basis.
  • How the succession will be funded. This part of the plan spells out if the succession will be funded through life insurance, a seller’s note, a business loan, or other financial options.

How Do You Create a Business Succession Plan?

This section contains a general outline of what a small business succession plan should cover and the steps to ensure a smooth transition when you leave the company.

1. Decide how you will transfer the business’s ownership.

These are the four ways to transfer business ownership:

  • Transfer the business to your heirs.
  • Sell your shares or ownership interests to your business partner(s) or co-owner(s).
  • Sell the company to an employee who now fills a leadership position or other critical role.
  • Sell the business to an outside buyer.

2. Conduct a business valuation.

Even if you don’t plan to sell your business, getting a business valuation is beneficial in many ways. It can help with your retirement income strategy, place a value on future owners’ shares, and ensure the purchase of adequate insurance for long-term protection.

A business valuation can also attract potential buyers and investors, and help qualify you or your successors for business loans.

3. Prepare for the transition.

The period of time when ownership of a business is being transferred can put the company in a vulnerable position. Therefore, your succession plan should include the details on how the transition will happen to ensure that there is minimal disruption to operations and a high potential for a seamless handoff to your successor.

4. Review your plan annually.

Once you create your plan, don’t just file it away and forget about it. Over time, potential successors could change due to employees in key roles leaving the company or family members losing interest in taking it over. Or your own long-term plans for the future may shift. Therefore, review your succession plan annually to ensure that it stays aligned with your current and potential future circumstances.

Some Final Thoughts

Creating a business succession plan can be complicated. That’s why many small business owners choose to work with a professional to help them develop a succession plan that provides peace of mind.

The Oregon SBDC Network offers guidance to support small business owners with effective succession planning. Locate a Center closest to you by visiting

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