10 Steps to Succession Planning

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To execute a successful succession plan, an owner must take a multi-faceted approach – one that will bring together experts from many different fields, all guided by a single hand, to execute a complex process. 

This comprehensive, multidisciplinary approach can dramatically increase the chances of a desirable result, but with so many considerations, how does one begin the process? The answer can be found through the implementation of a systematic, strategic, and comprehensive approach to succession planning, which should include the following:

  1. Determine what you want

The first step is to reflect on what you want for yourself and for your business. Few business owners allow themselves this luxury, but it’s critical to establishing a personal agenda and identifying catalysts for change. This self-evaluation requires the owner to honestly answer questions such as:  

  • What are your personal ambitions? 
  • Are your personal aspirations aligned with the objectives of your business?
  • What is your appetite for risk and is it aligned with your company’s strategic direction?
  • Do you need any personal liquidity?
  • What does your ideal retirement look like? What will you do with your time? Can your identity and ego handle the change?

Start developing a primary plan… plus a few back-up options, keeping in mind that there are no wrong answers.

  1. Define your attributes

It’s not uncommon for business owners to have strong emotional ties to the business they’ve created. As such, it can be difficult to objectively assess the attributes of your business. Think of it this way – if your business were a stock, would you buy it? Potential buyers are going to look at every aspect of your business to evaluate whether it is a good investment. Get clear on your vision, strategy, culture, and platform. Develop the “story” you can tell potential buyers that explains the who, what, where, why, and how of your business.

  1. Understand the value of your business

Businesses are bought, not sold. Your business is worth whatever someone else is willing to pay for it, and it’s only worth whatever price and terms you have the power to negotiate. It’s critical to understand the value of your business on an annual basis (not just when it comes time to sell), as well as to understand how someone else will view and value it. When valuation becomes a regular component of your strategic plan, it gives you time to make changes to increase value (so you can realize maximum value when it comes time to exit). 

  1. Review firm’s structure and operations

Preparing for transition means making sure your operational structure can support your desired plan. This might mean changing your corporate structure (e.g., switching from a sole proprietorship to an LLC) or expanding your equity pool (i.e., a recapitalization) to facilitate a buy-in. Ask yourself if the business can easily transition; also consider if someone might need to make an investment in the business to get it “up to speed”. In other words, professionalize the business so it exists beyond any group of individuals  – a big key to success is actually making people replaceable!

  1. Assess client demographics and stability

Client demographics can play a critical role in the valuation and stability of a business, especially one that is a “services” business. Examine your client relationships to determine how “sticky” they might be under different ownership – will clients stay if you’re gone? Have you developed relationships with the next generation to mitigate the risk of client attrition? Is your client base too old that it has become a depreciating asset? These may not be easy questions to consider but they’re important to evaluate and address.

  1. Evaluate potential successors

Finding a suitable successor is usually the most time-consuming aspect of planning so be sure to start early. Options include an internal candidate(s), a family member/child who is not currently involved in the business, merging with another firm, and an external sale. Keep in mind that just because someone is family or a good employee, doesn’t mean they would make a good business owner. Start networking well ahead of when you’ll plan to exit the business. Perhaps you’ll hire someone to be your eventual successor, so know that it will take time to groom and mentor the right individual. Also consider that you may not be able to replace yourself with just one person – it might take two or three people to fulfill the skillset.

  1. Utilize employee retention mechanisms

When an owner of a company transitions out of the business, it becomes vital that other key employees remain. As you prepare for retirement, make sure retention mechanics exist to keep others from following you. This includes employment agreements with non-compete clauses, stock ownership programs (whether real or synthetic), and other employee benefits and perks. Anything that retains, motivates, and incentivizes staff (even something as simple as gym membership reimbursement) helps ensure that the support team stays with the business.

  1. Remember death & disability

Even though you’re planning for retirement, you still need to be prepared for the “unplanned”. Be sure to create a backup plan should something happen to you before your ultimate strategy is realized (we’re talking about death or disability). A few ways to accomplish this include: developing a Continuity Agreement, utilizing an Advisory Board that can transition to a Board of Directors should the unthinkable happen, and creating a trust that could allow a younger family member to take over in the future when they’re ready.

  1. Prepare your strategy

Now that you’ve started thinking through the different moving pieces, it’s time to prepare your succession strategy. While considering all your options, remember that one size doesn’t fit all. Meet with your financial planner, estate planner, attorney, and accountant to make sure that everything works together the way you’d like it to (e.g., tax consequences). Most importantly, your plan doesn’t have to be perfect today – it can and will (and probably should) change over time. Succession planning is an everyday business activity – not something you’re going to “set and forget”. As such, you should review it on at least an annual basis with your advisers and update it as necessary.

  1. Allow yourself enough time

Succession planning is an emotional process. You need to accept the fact that change is inevitable and recognize the need to plan… and realize that proper planning takes time. You’re not going to wake up one day and put the proper plan in place by 5pm, ready to exit tomorrow. Additionally, understand that no one has a crystal ball – things change; life happens. Your succession plan should be designed to be flexible so that it can evolve as your business evolves. Starting early and giving yourself enough time will allow you to do everything that needs to be done (e.g., grooming your successor) in order to successfully transition out of ownership. 


The goal of this planning is to inspire you to take action and grab control over the succession process now so that when the day comes, the results are optimal for you, your family, your staff, and of course, for your clients. When approached with discipline and intention, your succession plan will help you gracefully transition into retirement.

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