How to Create a Succession Plan
There are several key steps necessary to create a comprehensive small business succession plan, and several ways to go about creating your plan. Some business owners may choose to create their own succession plan, while others may wish to engage the help of a professional, depending on the complexity of the plan and the business.
Whether you create your plan yourself or engage a professional, the five steps to writing a succession plan are:
- Determining timeline: Define when the succession should take place, either on a predetermined date or in the event of death or disability.
- Choosing your successor: If this is not a purchase by a specific party, consider choosing three or more potential candidates, filling out a profile for each.
- Formalizing your standard operating procedures: Document your standard operating procedures (SOPs), including an organizational chart, employee handbook, operations manual, and any other recurring meetings or processes.
- Valuing your business: Several methods exist to value your business. Once you have calculated your business’s value, it should be updated frequently.
- Funding your succession plan: Define a specific path that lays out how the successor will purchase the business. Options include life insurance, loan, and seller financing.
Small Business Succession Planning Providers
Creating a small business succession plan can be complicated, and many business owners choose to engage a professional third party to help them determine the value of the business, the type of succession plan, and create any supporting documentation. The choice of provider may be based on the complexity of the business as well as the event being planned for.
Small Business Succession Planning Providers
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Provider:
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Best for
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Private mid-size businesses with complex structures and many employees
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Local Business Attorney
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Small companies with several employees and simple financial structures
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Local CPA
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Small businesses with several employees and complex financial structures
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Small companies few employees and simple financial structures seeking long-term mentorship
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Small companies with few employees seeking one-on-one training and assistance
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Whether you choose a large accounting firm or a local certified public accountant (CPA) to assist in your succession planning will depend largely on the complexity of the business, and how many employees are involved. For small businesses, including a sole proprietorship, business owners might consider seeking the help of a small business mentor, using services like Service Corps of Retired Entrepreneurs (SCORE) and Small Business Development Centers (SBDCs).