Succession Planning: 3 Essential Timelines for Business Owners

Succession planning is crucial for ensuring your business thrives when you step down. Whether you are passing the torch to the next generation or selling to a new owner, a well-thought-out succession plan is essential for the company’s continued success. 

What Is a Succession Plan in Business?

A succession plan is a business strategy that business owners use to pass down leadership to employees or new owners when they relinquish ownership. Effective succession planning ensures your business continues to run smoothly even when you're not around to manage it personally. The plan should identify future staffing needs and the right personnel to fill those positions. 

How to Create a Succession Plan

A succession plan creation process can be time-consuming as it requires a lot of internal consultations and coordination between departments. To create a successful succession plan, you should:

• Identify key positions: Determine what the most critical positions are for business growth.
• Single out potential successors: Discuss key requirements for filling these new roles and identify people who meet those requirements.
• Determine timelines: Set timelines for potential successors to be ready.
• Identify requisite development needs: Analyze areas where skill gaps might exist and find ways to fill those gaps. 
• Make it a continual commitment: Liaise with departmental managers to identify areas for improvement and implement them continually.

How to Make a Family Business Succession Plan

While creating a family business succession plan borrows from the general succession plan creation process, it's more detailed in a few areas. Along with the above five steps, you'll need these two additional areas of focus:

• Create a business and owner estate plan: Address the taxation implications upon transfer or sale of ownership, divorce or death. You may have an attorney draft a revocable family trust agreement and a will to ensure the business goes to the right person with minimal tax or inheritance challenges.
• Create a transition plan: Focus on how your business will be transitioned — either sold or given as a gift/bequest. You will also need to include relevant financing options, such as self-financing from retiring owners or external financiers.